Coffee prices are regaining momentum as a stronger Brazilian real, speculative short positioning and renewed weather concerns provide support to the market. December arabica has climbed to a 3.5-week high, while November robusta has reached a six-week high.

The rally comes against a complicated fundamental backdrop. Global coffee production is expected to remain abundant, Brazil is bringing a large crop to export markets and Vietnam is reporting stronger shipments. However, declining arabica inventories, a potentially significant El Niño event and heavily short robusta positioning are creating upside risks.

The market is therefore balancing near-term abundant supply against increasingly important risks to the next production cycle.

Market Snapshot

Market Factor	Current Situation	Market Impact
December Arabica	+1.32%	Bullish
November Robusta	+1.70%	Bullish
Brazilian Real	Near 4.5-month high	Bullish
Brazil 2026 Crop	67.6M bags estimated	Bearish
Global 2025/26 Balance	3M-bag surplus	Bearish
Global 2026/27 Production	USDA forecasts record 189.7M bags	Bearish
ICE Arabica Stocks	260,654 bags	Mixed
ICE Robusta Stocks	5,398 lots	Bearish
Robusta Fund Positioning	3,959 net-short	Potentially bullish
El Niño Risk	Increasing weather uncertainty	Bullish

Coffee Prices Regain Momentum

December arabica coffee has moved to its strongest level in approximately three and a half weeks, while November robusta has reached a six-week high.

The recovery follows a period of significant weakness, during which coffee prices reached multi-month lows as traders focused on expectations for abundant global supplies.

The latest rally suggests that the market is beginning to price a combination of currency support, speculative positioning and future weather risks.

However, the fundamental picture remains mixed, meaning the durability of the move will depend heavily on whether weather concerns begin to translate into lower production expectations.

Stronger Brazilian Real Supports Coffee

The Brazilian real has strengthened to around a 4.5-month high against the US dollar.

This is important for coffee because Brazil is the world’s largest coffee producer and a major exporter.

A stronger real reduces the incentive for Brazilian producers to sell coffee into international markets because dollar-denominated export revenues translate into fewer reais.

The currency therefore provides an additional source of support for coffee prices at a time when Brazilian supplies are still entering the global market.

Robusta Short Covering Could Accelerate the Rally

Robusta positioning represents an important technical risk to the upside.

The latest Commitment of Traders data showed commodity funds increasing their net-short position in robusta futures by 2,658 contracts during the latest reporting week, taking the total net-short position to approximately 3,959 contracts.

That is the largest net-short position in around 13 months.

This creates the potential for a short-covering rally if prices continue higher.

A sustained technical advance could force funds to reduce bearish positions, potentially accelerating the move beyond what current physical fundamentals alone would justify.

El Niño Creates a New Production Risk

Weather is becoming increasingly important to the next Brazilian crop.

A developing El Niño pattern could delay rainfall during September and October, a critical period for flowering in Brazil’s coffee-growing regions.

A delay in rainfall during flowering could reduce flowering quality and ultimately affect production during the 2026/27 crop cycle.

The US Climate Prediction Center has previously indicated that the emerging El Niño could become one of the strongest events in more than 75 years.

A major El Niño would introduce the possibility of significant rainfall disruption, drought conditions and temperature volatility across coffee-producing regions in South America and Asia.

Brazil Weather Currently Provides a Counterweight

The immediate Brazilian weather picture is not entirely bullish.

Recent rainfall in Minas Gerais — Brazil’s largest arabica-producing region — has been above the historical average.

Around 33.3 mm of rain was recorded during the latest reported week, approximately 104% of the historical average.

Adequate rainfall during the flowering period could improve the prospects for the next crop and potentially offset some of the concern surrounding El Niño.

This creates a critical tension for the market: current rainfall is supportive for future production, but the longer-term weather pattern remains uncertain.

Vietnam Supplies Remain Strong

Vietnam’s coffee market is providing another bearish influence, particularly for robusta.

Recent rainfall has improved soil moisture across the Central Highlands, Vietnam’s primary coffee-growing region, supporting cherry development.

Vietnam’s September coffee exports increased approximately 53% year-on-year to 124,000 MT, while exports for January through September increased 16.2% to around 1.45 MMT.

Vietnam’s 2025 coffee exports also increased approximately 17.5% to 1.58 MMT.

Production for the 2025/26 season is expected to rise around 6% to approximately 1.76 MMT, or 29.4 million bags.

The combination of improved growing conditions and stronger exports is therefore limiting the upside potential for robusta.

Brazil Supplies Are Increasing

Brazil’s current harvest is reaching the export market, creating additional near-term supply pressure.

Brazilian coffee exports in August increased approximately 31% year-on-year to a record 4.155 million bags for the month.

Arabica exports increased around 26% to 2.87 million bags, while robusta exports jumped 54% to approximately 954,000 bags.

Separate Brazilian trade data also showed August coffee exports rising approximately 45% year-on-year.

This significant export flow is one of the main reasons the market has struggled to maintain higher prices despite weather and currency support.

Brazil Production Outlook Remains Large

Brazil’s crop outlook has improved significantly.

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

Arabica production is expected to rise approximately 35% year-on-year to 48.21 million bags.

Robusta production, however, is forecast to decline approximately 6.6% to 19.39 million bags.

The divergence between arabica and robusta production is important. A larger Brazilian arabica crop should keep pressure on arabica prices, while declining robusta production could provide some support to the robusta market.

Global Coffee Balance Remains Comfortable

The International Coffee Organization expects 2025/26 global production to increase approximately 4.4% to a record 183.6 million bags.

Consumption is forecast to decline around 0.9% to 180.6 million bags.

That leaves the global market with an estimated surplus of approximately 3 million bags — the first surplus in five years.

This remains one of the most important bearish fundamental factors facing coffee.

The market therefore needs to see evidence that future weather risks are capable of offsetting the current surplus before a sustained structural bull market can develop.

Inventories Send Mixed Signals

Arabica and robusta inventories are moving in opposite directions.

ICE arabica stocks previously fell to approximately 217,646 bags, the lowest level in 27 years, before recovering to around 260,654 bags.

Although the recent inventory recovery reduces some of the immediate tightness, stocks remain historically low.

Robusta inventories tell a different story.

ICE robusta stocks have risen to approximately 5,398 lots, their highest level in around ten months.

This divergence supports a relatively more constructive outlook for arabica than robusta from a physical inventory perspective.

USDA Forecasts Record Global Production

The USDA’s latest outlook remains fundamentally bearish.

Global coffee production for the 2026/27 season is expected to rise approximately 6% to a record 189.7 million bags.

Arabica production is forecast to increase around 12%, while robusta production is expected to decline approximately 0.7%.

Global ending stocks are projected to rise by approximately 1.9 million bags to 26.3 million bags.

The USDA also expects Brazil’s 2026/27 crop to reach a record 71.9 million bags, approximately 14% above the previous year.

These projections provide substantial resistance to the idea of a sustained supply-driven coffee rally unless weather conditions deteriorate materially.

Bullish Scenario

Coffee could extend its recovery if:

• The Brazilian real remains strong.
• El Niño delays rainfall during Brazilian flowering.
• Brazil’s 2026/27 crop expectations are reduced.
• Arabica inventories remain historically low.
• Robusta funds begin covering their large short positions.
• Vietnam’s crop or export flows disappoint.
• Global consumption proves stronger than expected.
• Weather risks spread across multiple producing regions.

A combination of short covering and deteriorating weather could produce a rapid upside move, particularly in robusta.

Bearish Scenario

The main downside risks are:

• Brazil’s large crop continues entering export markets.
• Brazilian rainfall remains favourable during flowering.
• Vietnam’s production continues improving.
• Global exports remain strong.
• ICE robusta inventories continue rising.
• Global production reaches or exceeds current USDA forecasts.
• The 2025/26 surplus persists into the next season.
• El Niño produces less agricultural disruption than currently feared.

The most significant bearish factor remains the expectation of record global production.

Coffee Price Outlook

The short-term outlook has improved, but the longer-term direction remains uncertain.

Arabica has stronger support from historically low inventories and the potential for weather-related production risk. Robusta has additional upside potential because of the unusually large speculative short position.

However, the market is still dealing with substantial physical supply.

The next major directional signal will likely come from the interaction between Brazilian weather and fund positioning. If rainfall remains favourable and production estimates continue rising, the recent rally could fade. If weather deteriorates while funds begin covering shorts, the recovery could accelerate considerably.

Supply Outlook

Near-term supply remains relatively abundant.

Brazil is exporting a large crop, Vietnam is increasing shipments and global production is expected to reach record levels.

The risk lies further ahead.

Brazilian flowering conditions, El Niño and the next crop cycle could significantly alter the current supply outlook. The market therefore needs to distinguish between today’s abundant physical availability and tomorrow’s production risk.

Demand Outlook

Demand remains an important stabilising factor, although current global consumption forecasts do not point to an immediate shortage.

The ICO expects consumption to remain below production during 2025/26, producing the first global surplus in five years.

For prices to sustain a major upside trend, demand would either need to strengthen or production estimates would need to decline.

Louis Roche Analysis

Coffee is currently caught between two very different narratives.

The first is the abundant supply story: Brazil is producing a large crop, exports are strong, Vietnam is shipping more coffee and the USDA expects another record global crop.

The second is the future supply-risk story: El Niño could disrupt Brazilian flowering, arabica inventories remain historically low and robusta funds are carrying one of their largest short positions in more than a year.

The Brazilian real adds another layer to the equation because its recent strength reduces the incentive for Brazilian producers to accelerate export selling.

In my view, the current rally should be treated as a developing recovery rather than confirmation of a new long-term bull market.

The key risk is that the market has become increasingly sensitive to weather. If Brazil receives favourable rainfall throughout the flowering period, the large global supply outlook will regain control. But if rainfall deteriorates and El Niño becomes disruptive, the market could move quickly because speculative positioning provides significant fuel for short covering.

Coming Sessions

Markets will focus on:

• Brazilian rainfall and flowering conditions.
• El Niño forecasts and potential agricultural impacts.
• The Brazilian real against the US dollar.
• Brazil’s export volumes.
• Vietnam’s coffee exports and Central Highlands weather.
• ICE arabica and robusta inventories.
• Commodity fund positioning.
• Revisions to Brazil’s 2026/27 crop estimates.
• USDA and ICO global production expectations.
• Evidence of changes in global consumption.

Today Markets View

Today Markets maintains a neutral-to-cautiously bullish near-term view on coffee.

The recent rally has credible support from currency strength, historically low arabica inventories and the potential for robusta short covering.

However, the fundamental supply outlook remains a significant constraint. Record or near-record global production, strong Brazilian exports and improving Vietnamese supplies could limit the duration of the rally unless weather risks begin reducing future crop expectations.

The next major move is likely to depend on whether weather risk or abundant supply becomes the dominant market narrative.

Currency Hedger View

The Brazilian real remains an important component of the coffee price equation.

A stronger real can reduce Brazilian producer selling and therefore reinforce upward pressure on international coffee prices. For coffee exporters, importers and commercial businesses, the combination of commodity volatility and USD/BRL movements can materially affect margins.

Managing the currency exposure alongside the underlying coffee exposure can therefore become increasingly important as the market enters a more volatile weather-sensitive period.

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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.