Jun 19 / Laleska Moda

Weather and technical factors bring volatility to prices

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  • Coffee future prices oscillated sharply this week, reflecting both technical factors and increasing worries over weather impacts in Brazil and Southeast Asia.   

  • In Brazil, recent rains have delayed the coffee harvest and hit the coffee beans that were left to dry, which could impact the quality of these lots. Next week, a cold front is also expected in Brazil and could support prices in the short-term and bring volatility.  

  • Concerns over the possible impact of the El Niño in Southeast Asia also increased in the past weeks, especially as Vietnam is still in its 26/27 season development stage. Rains continue to remain below average levels. 

  • The chances for a very strong El Niño event increase to over 60% during October and January 2027, with potential negative effects on Robusta production. Washed Arabica production in Central America could also be affected.   

Weather and technical factors bring volatility to prices  

After the sharp drop in early June, coffee prices have rebounded over the past days, with the Arabica July and September futures trading above 270 c/lb once again. The July contract also reached the 280 c/lb level, ending this Thursday (18) at 275.1 c/lb, 7.0% above last Friday's close – today the NY ICE exchange was closed due to the Juneteenth Holiday. The Robusta July contract closed at 3,640 USD/mt this Friday (19), 1.3% above the 12th.

The main drivers behind this price movement were technical buying — after contracts entered oversold territory — and weather concerns in Brazil and Southeast Asia. From a technical standpoint, part of the move may also reflect the recent shift in speculative fund positioning: as funds moved to net short positions over the past week, some of these shorts may have been covered amid recent reports of harvest delays in Brazil. It is worth noting, however, that both Arabica and Robusta have now entered overbought territory, a scenario that could trigger fresh declines, especially as the overall medium-term outlook remains bearish on the back of Brazil's record crop.

LN-Robusta (USD/mt), NY-Arabica and Arbitrage (c/lb) (1st contract)

Source: LSEG

CFTC: Arabica Speculative Funds Positions (lots)

Source: CFTC

In the short term, however, rain has returned to much of the Arabica regions in the country, further delaying fieldwork and potentially affecting the quality of the beans recently left to dry. An increase in rainfall during autumn and winter was already expected due to the El Niño phenomenon — now officially active — with impacts on the pace of the harvest. It is worth highlighting, however, that the event also tends to reduce the likelihood of frost during the Brazilian winter.

As of this Friday, the harvest rate in Brazil stands at 39%, with 29% of total Arabica beans already harvested, while Conilon progress reaches 59% (see the report here). For this weekend, a new cold front is forecast to hit the Southeast, potentially bringing additional humidity and dropping temperatures across coffee-producing regions. Forecasts indicate a sharp drop in temperatures in the South of Minas, Cerrado, and São Paulo regions, especially over the next weekend. Although no frost is currently expected in coffee areas, this scenario tends to support prices in the short term.

El Niño also raises concerns over potential negative impacts on other origins, such as Central American countries, Vietnam, and Indonesia, adding to market volatility. It is worth recalling that, in the case of Robusta, the last El Niño event (23/24) led to a decline in production in Southeast Asia (see the El Niño report here). With the event now active and a probability of over 60% of a very strong episode between October and January, markets could begin to price in this risk.

In Vietnam, rainfall remains below average levels, raising concerns over the development of the 26/27 season. If rainfall stays limited, bean filling could be affected, leading to lower yields. For now, we have kept our estimate unchanged at 30.4 million bags, but should weather conditions remain unfavorable, we may revise our figures downward. In Indonesia, rainfall has finally eased in parts of the country, allowing the harvest to begin. However, fieldwork is only expected to peak at the end of July, limiting supply availability in the short term.

Vietnam: Cumulative Precipitation in Central Highlands (mm)

Source: Gadas, CPC

Indonesia: Cumulative Precipitation (mm)

Source: Gadas, CPC

El Niño could also have negative impacts on the 27/28 season for both countries. With a stronger event expected in the second half of the year, higher temperatures and drier weather could affect the development period of the Indonesian crop. An extended dry season in Vietnam — especially if El Niño persists into early 2027 — could reduce water availability for irrigation and delay rainfall, potentially impacting the early development of the 27/28 season.

The potential impacts of this weather pattern tend to elevate risks (and price volatility) in the longer-term view, particularly if Brazil is also affected. However, in a scenario where impacts are concentrated in Robusta-producing areas and Central America, this could trigger shifts in arbitrage levels and differentials.

In Summary

Coffee prices rebounded over the past days after the sharp drop in early June, with Arabica July and September futures trading back above 270 c/lb and the July contract briefly reaching 280 c/lb. The recovery was driven by technical buying — following oversold conditions — and weather concerns in Brazil and Southeast Asia, alongside short-covering by speculative funds amid reports of harvest delays in Brazil. However, both Arabica and Robusta have now entered overbought territory, which could trigger fresh declines, especially given that the medium-term outlook remains bearish on the back of Brazil's record crop.

On the fundamentals side, rain has returned to Brazil's Arabica regions, delaying fieldwork and raising quality concerns, while a new cold front is expected to bring sharp temperature drops across the South of Minas, Cerrado, and São Paulo — supportive for prices in the short term, though no frost is currently forecast. The now-active El Niño, with over 60% probability of a very strong event between October and January, adds risk to other origins: in Vietnam, below-average rainfall threatens the 26/27 season (estimate kept at 30.4 million bags for now), while in Indonesia the harvest is only expected to peak in late July. Looking further ahead, El Niño could also weigh on the 27/28 season in both countries, elevating long-term price volatility — particularly if Brazil is also affected, while impacts concentrated in Robusta areas and Central America could instead shift arbitrage levels and differentials.

Weekly Report — Coffee

Written by Laleska Moda

laleska.moda@hedgepointglobal.com

Reviewed by Livea Coda
livea.coda@hedgepointglobal.com
www.hedgepointglobal.com

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