The BRL Collapse and What It Means for Coffee
The Brazilian real (BRL) has collapsed since Lula’s re-election, losing 8% against the US dollar in a single session and about 11% overall. Behind the move is a lack of trust: investors don’t believe the government will get public spending under control.
That doubt is well grounded. Brazil’s public debt is above 80% of GDP and still rising, and with interest rates above 13%, it keeps growing on its own. The past four years under Lula didn’t contain the problem, so with four more years ahead, the real’s slide is investors signaling they don’t trust the government to change course.
In general, a weak BRL tends to be a bearish factor for coffee, for two reasons. First, some farmers may sell more, since each dollar of coffee converts into more reais (all else equal). Second, speculators often trade coffee, sugar and other Brazilian commodities off the BRL’s daily moves.
This relationship seems to have held up this time: as the BRL collapsed, coffee prices also fell, so the weak BRL has mostly protected farmers and exporters from lower prices rather than giving them better ones. That could still change, depending on where the BRL and coffee prices head next.
In this article, we’ll explain why the BRL collapsed, what we expect from it going forward, and the implications for coffee.
What Happened to the BRL
Part of the BRL's drop (~7%) reflects fiscal fears, while the rest (~4%) is the market unwinding a bet on a different election result.
Before the first round on Oct 4, the real traded around 5.20 per dollar. It then strengthened to about 4.97, as the market priced in high odds of a change in government and many investors positioned for that outcome.
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When Lula won the runoff on Oct 25, those bets lost their reason to exist, and investors rushed to sell at the same time. The rest of the drop reflects the fiscal outlook itself: with four more years of the same path ahead, investors now demand a higher premium to hold Brazilian assets, and a weaker currency is part of that price.
Why We Don’t Expect a Quick Recovery
Some of the overshoot may reverse, but without a credible fiscal plan, we don’t expect the BRL to return to its pre-election levels any time soon.
The underlying problem is debt, and not just its size. Brazil’s public debt is above 80% of GDP and still rising. With interest rates above 13% and the economy growing only around 2%, the debt is growing faster than the economy can carry it, and there’s no clear plan to stop it.
High rates also hurt businesses along the way: a record number of Brazilian companies filed for court-supervised debt restructuring in 2025, including a record in agribusiness. This hurts trust, as it means potentially less tax revenue and a wider fiscal gap. And with most of the budget locked into pensions and benefits, little is left for the infrastructure that would help Brazil grow out of its debt.
To stabilize the debt, the government needs to collect meaningfully more than it spends before interest, which means raising taxes or cutting spending.
Taxes leave little room. At about 33% of GDP, Brazil’s tax burden is well above the Latin American average of 21% and close to that of rich OECD countries. The past four years leaned on new taxes, and that approach is running out of road.
That leaves cutting spending as the obvious way forward, but so far, we’ve seen no sign of it. To win back the market’s trust and strengthen the BRL, the government must show credible signs of fiscal discipline. Until it does, our base case is a weak and volatile BRL.
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That said, things can still change. In 2002, the market panicked as Lula rose in the polls, and the BRL lost more than 40% of its value in the months before the election. After taking office, Lula appointed an orthodox economic team and tightened fiscal policy, which helped restore confidence. With a friendlier global backdrop in 2003, the real recovered strongly.
A credible fiscal plan could do the same now, but we’d need to see it first.
Why a Weak BRL Matters for Coffee
Assuming all else equal, a weaker BRL makes the same coffee price worth more to Brazilians. Coffee is priced in dollars, but farmers and exporters are paid in reais, so when the real weakens, each dollar converts into more reais.
Here’s a simple example. With arabica at $2.80/lb, a 60kg bag is worth about $370. At 4.97 reais per dollar, that’s about R$1,840 a bag. At 5.53, the same bag is worth about R$2,050, roughly 11% more, without ICE moving at all. (Note: these are rough numbers, before differentials and costs.)
So, if all else equal, that encourages farmers to sell and exporters to do business. This matters especially this year, because farmers have been slow to sell, and a better price in reais could be what gets some of them to move.
Ultimately, a weak BRL tends to weigh on coffee prices, both because farmers may sell more and because speculators often trade coffee off the BRL’s daily moves.
Why It’s Not a 1:1 Relationship
A weak BRL doesn’t automatically mean more selling, because the exchange rate is only one part of the farmer’s price. There are other components to take into account.
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First, coffee (futures) prices can fall as the BRL weakens, and that’s exactly what has happened. Since the runoff, the real has gone from 4.98 to 5.58 per dollar, and arabica has fallen from 307.45 to 271.40 c/lb.
A bag that was worth about R$2,025 is now worth about R$2,005. In other words, the farmer’s price in reais barely moved. So, even though the BRL collapsed, the incentive to sell hasn’t changed much.
Second, many farm costs are priced in dollars. Fertilizers, fuel and crop protection are largely imported, so a weaker real also raises the input costs of producing the next crop.
These higher costs will mostly hit the next purchase cycle. That gives farmers a window where margins look better than they will later, which, if anything, favors selling sooner rather than later.
Third, expectations matter. If farmers think the BRL will keep weakening and coffee prices will rise, then for them, waiting can make more sense than selling. On the other hand, with interest rates above 13%, holding unsold coffee is also expensive (opportunity and financing costs), which pushes the other way.
Conclusions
Putting it together, a weak real can help origin flows, but it won’t flood the market with Brazilian coffee. How much more supply moves depend on how coffee prices move and on what farmers expect from prices and the BRL.
Given the fiscal backdrop, we expect the BRL to stay weak and volatile for now, and that matters most if coffee prices rally. With the BRL this weak, any rise in prices turns into a large gain in BRL's, which can encourage selling and exporting. That matters especially for farmers who expect input costs to rise and have fertilizer bills coming due as the wet-season application window gets underway.
So ultimately, we would expect that in the current weak BRL environment, any coffee market rallies may meet more Brazilian selling than they otherwise would.
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