Jul 31 / Laleska Moda

Volatility Holds as ICE Stocks Plunge to Multi-Year Lows

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  • Arabica ICE certified stocks dropped sharply in July, reaching their lowest levels in more than two years. With no coffee pending for grading and little interest in certification in origins, stocks may continue to decline. 

  • The current tightness in the market coupled with rain over the last weekend in Brazil opened space for new highs in the past days. Although it is not early July levels, volatility in the market has remained high.   

  • While short-term worries supply persists, the expectation is still for a surplus in 2026/27, mainly due to the record crop in Brazil, which could still cap the recent recovery in prices. Last week, USDA also released its figures for the season, pointing to a 9.9 M bags surplus. 

  • On the other side, a super El Niño impact on coffee producing countries is closely being watched. Beyond the rains during the harvest in Brazil, the phenomenon could still impact global surplus, as most origins are in their development period. 

Volatility Holds as ICE Stocks Plunge to Multi-Year Lows

Coffee prices remained highly volatile throughout the rest of July, with the Arabica September contract once again reaching the 340 c/lb level in recent days as short-term supply concerns persisted. Although still well below the highs seen on July 10 following a series of corrections, the front-month contract ended the month 6.7% above June levels, closing on July 31 at 332.1 c/lb. Robusta followed a similar trend early in the month, but ended the month with a drop of 1.6% from June 30, with the September contract settling at 3,782 USD/mt. On a weekly basis, Arabica prices increased 2.9%, while Robusta went 2.5% down.

Near-term contracts are likely to remain volatile in the coming weeks, particularly in Arabica, as certified stocks continue to decline, signaling a tighter supply situation. At the same time, market participants await the arrival of Brazil's record crop, which is expected to generate a surplus during the 2026/27 season.

ICE Arabica stocks have been trending lower for several months but declined sharply during July as traders and roasters continued to withdraw coffee from exchange warehouses without a significant increase in new certifications. As a result, stocks fell by 113.2 K bags, or 30%, during the month, reaching their lowest level since February 1st of 2024. Since the beginning of 2026, Arabica inventories have declined by approximately 188.9 bags (-41.7%).

Stocks could fall even further in the coming weeks, as ICE data currently shows a low volume of coffee lots pending grading, a factor that may continue supporting prices. This reflects the lack of interest in certification among Brazilian farmers since mid-2025, combined with low inventories in other origins due to the off-season and stronger differentials, which have discouraged new certifications.

Arabica ICE certified Stocks (lots)

Source: ICE

Arabica Pending Grading Stocks (lots)

Source: ICE

In addition to tighter ICE inventories, recent rainfall in parts of Minas Gerais and São Paulo associated with a cold front renewed concerns about potential delays to the 2026/27 harvest. These fears contributed to a price rebound earlier in the week. However, as no significant disruptions to field activities were reported (see the harvest report here), prices eased slightly afterwards, although the September-December spread remained elevated, highlighting ongoing short-term supply concerns.

With destination stocks still relatively low, the market continues to wait for Brazil's record crop to reach export channels in hopes of easing supply tightness and reducing prices. So far, rainfall has not affected production estimates, with most market participants projecting Brazil's crop between 70 and 76 million bags, sufficient to support a recovery in global inventories.

Last week, the USDA released its updated global coffee balance, projecting a surplus of 9.9 million bags for the season, supported by record production of 189.7 million bags. Nevertheless, global stocks are forecast to increase by less than 2 million bags, remaining well below historical averages, as demand is expected to reach a record 179.7 million bags, driven mainly by growth in the United States and Europe.

These figures are broadly aligned with Hedgepoint's forecasts and recent trends among major coffee companies. This week, two leading industry players reported stronger-than-expected earnings and volume growth, particularly in Europe and North America, reinforcing the view of resilient coffee demand. Hedgepoint currently estimates global demand at 181 million bags and production at 189.2 million bags, resulting in a surplus of 8.2 million bags.

USDA: Coffee Supply and Demand (M bags)

Source: USDA

While expectations of a surplus could limit further price gains, particularly if Brazilian producers increase sales volumes, potential El Niño impacts remain an important source of uncertainty for the market. In addition to possible production risks for Colombia, Vietnam, and Central American origins during the 2026/27 cycle, market participants are already closely monitoring the implications for Brazil's 2027/28 crop. El Niño could alter rainfall patterns in Brazil over the coming months and increase the likelihood of heatwaves during the crucial flowering period.

As discussed previously, global coffee inventories have fallen significantly in recent years. Therefore, a meaningful stock recovery would require not only a surplus in 2026/27 but also additional surpluses in subsequent seasons. As a result, even before the Brazilian harvest is fully completed, market attention is increasingly shifting toward prospects for the 2027/28 crop.

Hedgepoint: Coffee Supply and Demand (M bags)

Source: Hedgepoint

In Summary

Coffee prices experienced extreme volatility over the past week, driven primarily by technical factors and fund activity rather than major changes in fundamentals. As Arabica futures broke key resistance levels, margin increases, short covering, algorithmic trading, and low liquidity amplified price swings. At the same time, underlying market conditions remain supportive, with growing medium-term supply concerns linked to El Niño risks, declining ICE-certified stocks, slower certification activity, and tighter inventories at origin. 

In Brazil, the 2026/27 harvest remains behind schedule due to June rains, while farmer selling continues well below historical averages, limiting the availability of coffee in the market. As a result, although fundamentals have not shifted significantly, the market remains highly sensitive to supply-related developments, with Brazil's export data and upcoming USDA estimates expected to be key drivers in the near term.

Weekly Report — Coffee

Written by Laleska Moda

laleska.moda@hedgepointglobal.com

Reviewed by Luiz Roque
luiz.roque@hedgepointglobal.com
www.hedgepointglobal.com

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