Jul 24 / Laleska Moda

Live with Experts – Highlights from the Coffee Market

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  • This analysis summarizes the key topics discussed during our “Live with Experts - Coffee Market”, held on July 23. The full recording is available through the event link.

Macroeconomic Overview

On June 18, 2026, the United States and Iran signed a Memorandum of Understanding, agreeing to suspend hostilities for 60 days and negotiate an end to the conflict, leading to lower energy prices. However, renewed attacks emerged on July 7, escalating tensions again, affecting the energy sector and reinforcing expectations of persistent inflation. 

Since the beginning of the conflict, inflationary pressures have increased across many countries, raising the likelihood of a prolonged period of restrictive monetary policy. 

In Europe, the situation led the ECB to raise its three key interest rates by 25 basis points. In the United States, interest rates were left unchanged at 3.5%-3.75%, but policymakers signaled that an additional rate hike in 2026 remains possible, as inflation is still above the 2% target. A higher U.S. interest rate environment typically attracts capital toward dollar-denominated assets and weakens emerging-market currencies. In Brazil's case, the interest rate differential may continue to support carry trade activity.

Key Countries CPI (% Y/Y)

Source: LSEG

Prices are likely to continue to be volatile

Coffee prices, particularly Arabica, have shown significant volatility in July. While fundamentals have also played a role, macroeconomic factors, technical indicators, and fund positioning were the main drivers, as Arabica futures broke key resistance levels and long-term moving averages. The Arabica-Robusta arbitrage also widened. 

At the same time, higher initial margins reduced market liquidity and forced many funds to adjust or close positions, amplifying price movements. Margin calls increased and triggered additional short-covering activity. 

Although the market has corrected from recent highs, this does not rule out another period of volatility, especially given the risks associated with El Niño. 

Spreads continue to signal short- and medium-term supply concerns, with the September-December Arabica spread widening significantly during the month. Despite technical influences, underlying fundamentals remain supportive. Delays in the Brazilian harvest, tighter supplies from other origins, the impact of a strong El Niño, and declining ICE-certified stocks are expected to keep nearby spreads elevated.

LN-Robusta (USD/mt), NY-Arabica and arbitrage (c/lb)

Source: LSEG

Arabica: September-December Spread(c/lb)

Source: LSEG

Brazil’s 26/27 harvest was delayed

The constant rainfall in June prevented workers from entering the coffee fields, delaying the harvest by many days and also affecting the quality of the beans that had been harvested and were drying during that period. Even after picking up pace in July, the harvest remains below previous years’ levels.

On the other hand, despite the delay in harvesting, the rain did not impact total production, and an exceptional harvest is expected in the country. Other market entities also highlight Brazil’s higher 26/27 crop and how it will lead to a global coffee surplus.

As for the market, while trade was recorded as the harvest progressed and prices rose after the 10th, the pace of sales was slower than in the previous season. This has also been reflected in the country’s coffee exports, with Arabica exports remaining below the average of recent years. Robusta exports, on the other hand, have shown some improvement in recent months, especially due to the more advanced harvest.

In this context, it is also important to note that in mid-July, Brazilian instant coffee was added to the list of exemptions from the new 25% tariff imposed by the U.S. Given that the country is one of Brazil’s largest importers, the measure could boost exports.

Cumulative Precipitation in Brazil Coffee Regions: June (mm)

Source: Somar, Bloomberg.

El Niño poses a risk to other origins 

Among the biggest risks for the 26/27 season, the increasing intensity of El Niño could impact the largest coffee producers. There is now a more than 70% probability that the phenomenon will become very strong between August and November 2026. In some producing regions, in fact, weather conditions have already raised concerns about this year’s production.

In Vietnam, for example, despite an increase in the production area, the development of the 26/27 crop has been marked by below-average rainfall, which has already led us to marginally reduce the country’s production forecast. Production could be affected even further if weather conditions do not improve. In Indonesia, the main concern is the weather during the second half of the year, when the country’s coffee plantations will enter the development phase of the 27/28 crop.

For Arabica coffee, most Central American countries are experiencing irregular rainfall patterns due to the El Niño phenomenon, making it essential to closely monitor the situation in the coming months. In Colombia, however, rainfall has remained close to average levels in recent months, contributing to the development of the 26/27 crop, although the El Niño phenomenon could still affect supply, especially during the Mitaca harvest.

ENSO Strength Probabilities (%) - Jule 2026

Source: NOAA, Hedgepoint

Possible Impacts of El Niño

Source: Hedgepoint

Global Supply

Although Brazil’s record harvest guarantees a surplus this season, an extremely strong El Niño could affect production in other producing regions (currently in the development phase). We have already revised downward our production estimates for some countries based on irregular rainfall patterns. As a result, we have reduced our surplus estimate for 26/27 from 9.9 M scs to 8.2 M scs.


Despite the reduction, the surplus may still allow for a recovery in stocks, although the current market structure, costs, and import trends in destination countries may suggest that producing countries will retain part of their production.

It is worth noting that, given that many countries did not begin harvesting until October and November, further revisions may be made, as the effects of El Niño could potentially alter the surplus. This phenomenon will also be a determining factor for the 27/28 crop in Brazil and Indonesia, consequently affecting coffee prices through the end of the year.

Global Coffee Supply and Demand (M bags)

Source: Hedgepoint

In Summary

The coffee market remains highly volatile, with attention focused on Brazil’s 26/27 harvest and the effects of El Niño on other origins in the coming months. July’s volatility was also attributed to macroeconomic factors, including persistent global inflation and several countries adopting more restrictive policies, as well as technical movements and shifts in the positions of speculative and hedge funds after contracts broke through key resistance levels.

 In Brazil, the harvest picked up pace during the month but remains below previous years’ levels, with sales also at lower levels than in recent harvests. Despite the delay, the country’s record harvest should allow exports to advance in the coming months, which could put downward pressure on prices.

On the other hand, uncertainties related to El Niño in other producing regions and still-low inventories in destination markets may offset some of the downward pressure expected from the Brazilian harvest. It will also be important to assess the effects of the event on the flowering period of the 27/28 season in Brazil, which is essential for determining global commodity prices.

Weekly Report — Coffee

Written by Laleska Moda

laleska.moda@hedgepointglobal.com

Reviewed by Luiz Silverio
luiz.silverio@hedgepointglobal.com
www.hedgepointglobal.com

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