Higher risk reduces new sales, triggering differentials and spreads

• Since February, the coffee market has remained subdued amid rising global risks following the escalation of the U.S.–Iran conflict. With the 25/26 harvest concluded in many producing countries, farmers are assessing the geopolitical impacts on the coffee market and have been refraining from selling substantial new lots.
  
  
• In Brazil, farmers have been increasingly reluctant to sell since the end of 2025, affecting both Brazilian coffee exports and differentials, especially after disruptions to maritime routes in the Red Sea. Arabica 17/18 fine cup, which had been trading at a discount earlier this year, is now quoted at a premium of over 40 cents/lb.
  
  
• Other origins are also experiencing rising differentials amid growing concerns over short‑term supply. Arabica and Robusta futures spreads are reflecting these supply-side worries as well.
  
  
• At the same time, changes in the macroeconomic environment – marked by higher bond yields and reduced expectations of interest rate cuts in major economies – along with the continuation of an inverted coffee market, may influence import behavior in destination markets and delay stock recovery in the coming months.

These developments are already raising market concerns and influencing spreads and differentials, particularly as Brazilian farmers continue to sell less coffee than in previous years – reflected in lower export volumes in 2026 – while Colombian exports have also declined due to lower production and a stronger peso. Differentials for both Arabica and Robusta are now higher than at the start of the year, with the most notable shift seen in Brazilian Arabica 17/18 fine cup. After trading at a discount earlier this year, it is now quoted at a premium of over 40 cents/lb. Brazilian farmers remain well capitalized and show little interest in selling carry over stocks.

While the medium to long term outlook still points to lower prices amid expectations of a record Brazilian crop, the market structure remains in backwardation, signaling near-term tightness . Front month spreads, which had been narrowing in early 2026, are once again widening, underscoring the market’s sensitivity to supply conditions amid persistent macroeconomic risks. The U.S.–Iran conflict has added inflationary pressures via higher energy prices, complicating inflation anchoring and reshaping monetary policy expectations in major importing economies such as the U.S. and the EU.

It is also important to recall that destination markets have significantly reduced coffee inventories – not only due to supply constraints in recent seasons, but also because of higher financial costs in the post pandemic environment of elevated interest rates. Higher coffee prices in recent years increased working capital requirements, prompting many importers to rely on short term supply while leaving inventories concentrated in producing countries. Although monetary policy began to ease in 2025, interest rates remain high, and renewed geopolitical tensions in the Middle East have dampened expectations of further easing. Combined with an inverted coffee market, this dynamic may reinforce stockholding in origins and lean inventories in consuming regions. At the same time, the prospect of a record Brazilian crop in the coming months allows roasters to continue operating on a hand to mouth buying basis, reinforcing this purchasing model.

As a result, while coffee supply may remain physically available in producing countries, it is less likely to flow smoothly toward consumption hubs. This implies that the market will remain highly sensitive not only to supply disruptions – whether at origin or along logistics routes – but also to any unexpected surge in demand. Therefore, while prices may continue to trend lower overall, the risk of renewed rallies should not be overlooked.

laleska.moda@hedgepointglobal.com