Coffee markets are extending their recent recovery, with arabica and robusta both moving higher as currency support, speculative positioning and weather risks provide a stronger near-term backdrop. Arabica has reached a 3.5-week high while robusta is trading around a six-week high, although the broader supply outlook remains a significant counterweight to the rally.

Brazilian real strength is helping underpin coffee prices by reducing the incentive for Brazilian producers to sell into international markets, while heavily short positioning in robusta creates additional potential for short covering. At the same time, concerns surrounding the developing El Niño pattern are increasing uncertainty over Brazil’s 2026/27 crop.

The market therefore faces a clear conflict between improving near-term price momentum and expectations for abundant global supplies.

Market Snapshot

Market Factor	Current Situation	Market Impact
Arabica	December futures +11.90, +4.07%	Bullish
Robusta	November futures +62, +1.76%	Bullish
Arabica trend	3.5-week high	Bullish
Robusta trend	6-week high	Bullish
Brazilian real	Near a 4.75-month high	Bullish
Robusta fund positioning	3,959 contracts net short	Short-covering potential
Brazil rainfall	33.3 mm in Minas Gerais, 104% of average	Bearish
Vietnam rainfall	Improving soil moisture	Bearish
ICO 2025/26 production	183.6 million bags, +4.4%	Bearish
ICO 2025/26 balance	3 million-bag surplus	Bearish
USDA 2026/27 production	189.7 million bags, +6%	Bearish
ICE arabica stocks	260,654 bags	Mixed
ICE robusta stocks	5,398 lots	Bearish

Coffee Price Action Strengthens

Coffee prices are building on a three-session advance, with December arabica futures rising 11.90 points, or 4.07%, while November robusta futures gained 62 points, or 1.76%.

Arabica has moved to its highest level in approximately three and a half weeks, while robusta has reached a six-week high. The advance suggests that traders are beginning to place greater emphasis on weather risks, currency movements and speculative positioning despite the still-large global supply outlook.

The Brazilian real is an important part of the current move. With the real trading near a 4.75-month high against the US dollar, Brazilian exporters face less incentive to accelerate dollar-denominated coffee sales. A stronger domestic currency can therefore reduce producer selling pressure and provide additional support to futures.

Robusta Short Positioning Creates Rally Potential

Speculative positioning is another important bullish factor.

Commodity funds have built a substantial net-short position in robusta futures. The latest Commitment of Traders data showed funds increasing their net short position by 2,658 contracts to 3,959 contracts.

That represents the largest net-short position in approximately 13 months.

Such positioning creates the potential for a stronger short-covering move if prices continue to rise. Traders holding bearish positions may be forced to buy futures to reduce exposure if technical momentum strengthens or weather concerns intensify.

This could amplify price gains even if the underlying fundamental balance remains relatively well supplied.

El Niño Raises 2026/27 Brazil Crop Risk

Weather is becoming increasingly important for the longer-term outlook.

The developing El Niño pattern could delay rainfall across Brazil during September and October, a critical period for flowering. Any disruption to flowering could eventually affect fruit development and yields for the 2026/27 crop.

The US Climate Prediction Center has indicated that the emerging El Niño could become one of the strongest events in more than 75 years. Such a powerful climate pattern could produce significant swings in rainfall and temperatures across major coffee-producing regions.

For coffee, the concern is not simply drought. Excessive rainfall, flooding, delayed flowering and temperature extremes can all affect production.

If El Niño develops into a prolonged and disruptive pattern, the market could begin to price a larger weather premium into 2026/27 contracts.

Brazil Weather Currently Provides a Counterweight

For now, however, Brazilian growing conditions remain broadly supportive.

Minas Gerais, Brazil’s largest arabica-producing region, received 33.3 mm of rainfall during the latest reported week, equivalent to 104% of its historical average.

Adequate rainfall during the flowering period can improve crop development and potentially support the next harvest.

This creates an important near-term contradiction for the market. Current rainfall is constructive for production, while the potential evolution of El Niño represents a longer-term risk.

As a result, coffee prices may remain highly sensitive to changes in Brazilian weather forecasts over the coming weeks.

Vietnam Crop Conditions Improve

Vietnam is also contributing to the bearish side of the supply equation.

Recent rainfall has improved soil moisture across the Central Highlands, Vietnam’s largest coffee-producing region. Better moisture conditions should support cherry development and potentially improve production prospects.

This is particularly important for robusta, where Vietnam remains the world’s largest producer.

Improving Vietnamese crop conditions combined with elevated exports could limit the upside in robusta unless speculative short covering becomes sufficiently strong to overwhelm the supply fundamentals.

Global Coffee Supply Remains Large

The longer-term supply outlook remains one of the largest obstacles facing the current rally.

The International Coffee Organization estimates that 2025/26 global coffee production increased 4.4% year over year to a record 183.6 million bags.

Consumption is projected at 180.6 million bags, down 0.9% year over year, leaving the global market with an estimated surplus of approximately 3 million bags.

This represents the first global surplus in five years.

The return to surplus conditions is important because it suggests that the market may have less fundamental justification for sustained price increases unless production risks begin to emerge in the next crop cycle.

Brazil Production Forecast Remains High

Brazil’s production outlook is also substantial.

Conab has raised its 2026 Brazil coffee production estimate to 67.6 million bags from 66.7 million previously.

Arabica production is expected to increase 34.8% year over year to approximately 48.21 million bags, while robusta production is forecast to decline 6.6% to 19.39 million bags.

The sharp increase in arabica production is particularly important because it could provide significant additional supply to the international market if weather conditions remain favourable.

However, the market will increasingly focus on whether current crop expectations can survive the coming flowering and development periods.

Brazilian Exports Continue to Add Supply

Brazilian exports remain another bearish factor.

Coffee exports reached a record 4.155 million bags in August, an increase of 31% year over year.

Arabica exports increased 26% to 2.87 million bags, while robusta exports jumped 54% to 953,592 bags.

Separate trade data showed Brazilian August coffee exports increasing 44.6% year over year to 206,618 metric tons, the strongest level in eight months.

With Brazil’s harvest moving through its final stages, continued export availability could keep physical supply flowing into international markets.

This may restrict the upside in futures unless weather concerns begin to threaten the next crop.

Vietnam Exports Accelerate

Vietnam is providing another source of supply pressure.

September coffee exports increased 53% year over year to 124,000 metric tons, while exports during January through September rose 16.2% to approximately 1.45 million metric tons.

Vietnam’s full-year 2025 coffee exports increased 17.5% to 1.58 million metric tons.

Production is also expected to improve, with the 2025/26 Vietnamese crop forecast at approximately 1.76 million metric tons, up 6% year over year and the highest level in four years.

The combination of improving production and strong export flows is particularly relevant for robusta, where Vietnam remains a dominant supplier.

Coffee Inventories Send Mixed Signals

Inventory trends are divided between the two major coffee markets.

ICE arabica inventories previously fell to just 217,646 bags, the lowest level in approximately 27 years. Stocks have since recovered to around 260,654 bags, a two-month high.

The low inventory base remains a structural source of support for arabica, even though the recent replenishment has reduced some of the immediate tightness.

Robusta presents the opposite picture.

ICE robusta inventories have risen to approximately 5,398 lots, the highest level in around 10 months.

The divergence between low arabica stocks and rising robusta stocks helps explain why the two markets may continue to display different fundamental characteristics even while both benefit from broader speculative momentum.

USDA Sees Record Global Production

The USDA’s 2026/27 outlook remains firmly on the bearish side of the longer-term balance.

Global coffee production is forecast to rise 6%, or approximately 10.8 million bags, to a record 189.7 million bags.

Arabica production is expected to increase 12% year over year, while robusta production is projected to decline 0.7%.

Global ending stocks are also forecast to increase by approximately 1.9 million bags to 26.3 million bags.

The USDA separately forecasts a record Brazilian 2026/27 crop of 71.9 million bags, up 14% year over year.

Therefore, the market needs to see evidence of weather-related crop deterioration before the longer-term supply outlook becomes decisively bullish.

Bullish Scenario

Coffee prices could extend their recovery if several factors align:

• El Niño becomes stronger and begins disrupting Brazilian flowering conditions.
• Brazilian rainfall becomes excessive or uneven during critical crop-development periods.
• The Brazilian real remains strong, limiting producer export selling.
• Robusta funds begin aggressively covering their large short position.
• ICE arabica inventories resume declining.
• Brazilian or Vietnamese export flows begin to slow.
• Weather risks spread across multiple major producing regions.

Under this scenario, speculative positioning could accelerate the move as traders react to tightening forward supply expectations.

Bearish Scenario

The recovery could lose momentum if:

• Brazilian rainfall remains favourable through the flowering period.
• Vietnam’s improving soil moisture translates into stronger production.
• Brazilian exports remain elevated.
• Vietnamese exports continue expanding.
• ICE robusta inventories remain high.
• Global production continues toward the USDA’s record forecast.
• The global surplus persists into the next crop cycle.

In this scenario, the current rally would increasingly appear to be a technical and positioning-driven recovery rather than the beginning of a sustained structural bull market.

Coffee Price Outlook

The near-term bias has turned more constructive after the strong three-session advance.

Arabica has the stronger fundamental support because of historically low inventory levels and the possibility of weather-related disruption to Brazil’s next crop.

Robusta has greater potential for sharp short-term upside because of the unusually large speculative short position.

However, the broader price outlook remains dependent on whether weather risks can overcome the substantial supply expected from Brazil and Vietnam.

The next phase of the rally will therefore require confirmation through either worsening weather or stronger evidence of declining physical availability.

Supply Outlook

Global supply remains abundant for the current season, with the ICO identifying a surplus and the USDA forecasting another record production year ahead.

Brazil is expected to deliver a substantially larger arabica crop, while Vietnam is showing improving production and export conditions.

The major supply risk is therefore shifting from the current harvest toward the development of the 2026/27 crop.

If El Niño becomes sufficiently disruptive to reduce flowering or yields, current production forecasts could be revised lower.

Demand Outlook

Demand remains relatively less supportive than supply.

The ICO expects 2025/26 consumption to decline 0.9% year over year to 180.6 million bags, leaving the market in surplus.

For prices to sustain a larger recovery, demand would ideally need to strengthen at the same time that supply risks increase.

Otherwise, rising production and inventories could eventually cap the upside.

Louis Roche Analysis

Coffee has moved into a more interesting phase because the market is balancing two very different stories.

The immediate supply picture remains bearish. Brazil and Vietnam are producing and exporting substantial volumes, the ICO sees a surplus, and the USDA expects another record global crop in 2026/27.

But markets trade future expectations, not simply current production.

The developing El Niño pattern is therefore becoming increasingly important. If the weather pattern begins to materially disrupt Brazilian flowering, the market could rapidly shift from focusing on surplus inventories to pricing a potential reduction in the next crop.

The Brazilian real is also important. Continued strength in the real reduces producer selling pressure, while the exceptionally large robusta short position leaves room for a sharp technical rally if prices continue higher.

My view is that coffee remains fundamentally mixed but increasingly sensitive to upside weather risk. Arabica has the stronger structural foundation because of historically low inventories, while robusta has greater potential for a rapid short-covering move.

The key question for the coming weeks is whether weather risk becomes sufficiently credible to challenge the current record-production forecasts.

Coming Sessions

Coffee traders will be watching:

• Brazilian rainfall and flowering conditions.
• The evolution and intensity of El Niño.
• The Brazilian real and its effect on producer selling.
• Brazilian export volumes.
• Vietnamese production and export data.
• ICE arabica and robusta inventory trends.
• Changes in speculative positioning.
• Signs of improving or weakening global consumption.
• Revisions to 2026/27 production forecasts.

A continued rise in prices accompanied by falling arabica inventories and increasing weather concerns would strengthen the bullish case.

Conversely, stable Brazilian weather, strong exports and rising inventories would make the recent rally increasingly vulnerable to a reversal.

Today Markets View

Today Markets sees coffee as cautiously bullish in the near term, but with significant fundamental resistance overhead.

The current rally is being supported by Brazilian real strength, short-covering potential and growing concern over the impact of El Niño on the 2026/27 crop.

However, record global production expectations, strong Brazilian exports and improving Vietnamese conditions remain important bearish counterweights.

The market is therefore entering a period where weather developments could become more important than current supply figures.

Currency Hedger View

For international coffee buyers, exporters and businesses exposed to Brazil and other major producing markets, currency movements remain an important part of the overall price equation.

A stronger Brazilian real can reduce producer willingness to sell coffee internationally, while changes in the US dollar can influence the effective cost of coffee for international buyers.

Currency Hedger monitors the interaction between FX markets, commodity prices, central-bank policy, macroeconomic conditions and producer/exporter flows to help businesses assess the broader currency environment surrounding international transactions.

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Contributor

Louis Roche – Today Markets

Market analysis prepared for Today Markets. For informational purposes only and not intended as investment, trading, financial or commodity advice.