The coffee rollercoaster: Is there a change in fundamentals?

Prices then plunged over the following two days before staging another sharp reversal on Thursday, as volatility remained elevated with significant intraday swings. While market fundamentals provide some bullish support, recent price action appears to have been driven primarily by technical factors and funds positioning. CFTC data from July 7 showed an increase in speculative funds' net long positions in recent days.

As Arabica futures broke through key resistance levels and long-term moving averages in early July, fresh buying interest emerged. At the same time, the Intercontinental Exchange (ICE) increased margin requirements for coffee futures. This reduced market liquidity and prompted many commodity funds to adjust or close positions, contributing to exaggerated one-way price moves. As prices rose and margin requirements increased, margin calls triggered additional short-covering activity, further pushing prices higher in an environment where algorithmic trading amplified market reactions.

Fundamentals, on the other hand, have had little change in the past weeks, but have also been contributing to market volatility, especially with an increase in the short to medium-term risk. While the El Niño has increased the risk for many producing countries in 26/27 and potentially to 27/28, stocks in most destinations have still not recovered, making the market more sensitive to any potential changes in supply. Meanwhile, ICE-certified stocks continue to decrease and, although ICE stocks are only a small part of global coffee stocks, they have become an important proxy in recent months, particularly as inventories have become more concentrated at origin, especially in Brazil. This short-term supply concern has also been reflected in the September–December Arabica spread.

In July alone, Arabica certified stocks declined by more than 32,000 bags, bringing the year-to-date reduction to over 110,000 bags. As some market participants have relied on certified stocks to meet delivery obligations, inventories at origin have tightened due to the seasonal low point in supply, while elevated differentials have continued to discourage certification. Brazil, in particular, has significantly reduced its participation in the certification process since last year as a result of historically high differentials. Even though differentials have softened more recently with the advance of the harvest, certification activity has yet to gain meaningful traction.

Regarding the Brazilian harvest, weather conditions have become more favorable for fieldwork despite rainfall reported in some regions over the past few days. However, due to the persistent rains recorded in June, the 2026/27 Arabica harvest remains behind schedule, with approximately 48% of the crop harvested as of last week, compared with the five-year average of 53%. Robusta harvesting is also slightly lagging, reaching 78% versus the historical average of 81% (see report here).

Farmer selling in Brazil also remains below expectations for this stage of the season. Although additional sales were reported last week as prices strengthened and harvest activity approached its peak, larger volumes were expected to reach the market. According to the latest data, producer sales for the 2026/27 crop stood at 26% of expected production in June, well below the five-year average of 36%. Arabica sales reached 26% of the crop, while Robusta sales stood at 28%, both below their respective historical averages of 36% and 37%.

Overall, while there has been no major shift in market fundamentals, the balance of risks continues to point toward potential supply constraints in the short to medium term. With liquidity remaining thin, any supply-related developments could trigger heightened price volatility, potentially amplified by fund activity. In the coming days, market participants will be closely monitoring Brazil's export data, scheduled for release this week, as well as the USDA estimates expected next week.

laleska.moda@hedgepointglobal.com