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May25 NY ended March defensively but retained Q1 ’25 gains of 20% year-over-year. During Q1, CIT non-commercial futures/options positions fluctuated, finishing March only slightly lower than at the end of Dec ’24. Index liquidation provided the most net selling during the quarter, totaling around 12k lots.
After February’s option expiry and the Mar/May roll, NY’s open interest (OI) rebounded in March, shifting marginally forward. At the end of February, May and July OI represented 72% of total OI, declining to 65% by the end of March.
The May25/May25 arbitrage strengthened further, from 43 cents in early October ’24 to 96 cents at year-end. Despite NY's strong arbitrage performance, its annual inversion weakened by approximately 4%. Speculative and arbitrage longs might be exploiting NY’s strength and inversion to roll positions forward.
Rolling 2nd Month Arabica v Robusta Spread
Meanwhile, as a ratio, we are in no-mans land..
Ratio of Arabica vs Robusta
Meanwhile, London futures OI remains heavily frontloaded, effectively acting as a spot rather than a futures contract. At the end of February, the front two months accounted for 88% of total OI, dropping to 77% by the end of March.
Coffee fundamentals largely remain unchanged. Roasters continue to operate cautiously, reluctant to build extended coverage due to concerns of reduced demand and potential high-priced inventory burdens. Modeling demand declines for an inelastic commodity amid retail discounting is challenging. Demand remains steady in North America and Europe, possibly due to consumer stockpiling, while demand among lower-income populations in Asia and Brazil might show notable declines first.
The market expects a fifth consecutive deficit year, with the 25/26 global balance projected between -1 and -6 million bags. There is consensus that robustas are in surplus and arabicas in deficit, suggesting a shift toward robusta-blended coffees, especially within Brazil. Typically, blend adjustments lag, but tight coverage conditions might accelerate the shift this year.
Hot, dry Brazilian weather in February/early March reduced optimism for the 25/26 crop, prompting a large cooperative to express concerns over potential impacts extending into 26/27. Brazil’s 25/26 arabica production consensus is around 40 million bags, but estimates from reputable sources vary by nearly 8 million bags. This represents about a 20% swing, highlighting significant uncertainty despite thorough crop surveys.
Brazil’s 24/25 export pace is expected to slow, potentially leading to reduced NY Brazil certifications. Conversely, Colombia’s production remains strong, with 24/25 and 25/26 estimates consistently in the 13 to 14 million bag range.
CECAFE Export Seasonality
Regarding carryover stocks, while some estimates indicate Brazilian farmers hold 5-15%, historically, carryover stocks have remained close to pipeline levels (approximately 2-3 million bags). As new crop arrivals begin in July '25, the arabica position might be tight, close to pipeline levels, but robusta arrivals could quickly saturate the market by May or June.
Local Brazilian exporters are financially constrained, limiting their ability to cover short positions initially sold around $3.80 or $3.20. This could create market volatility as contractual obligations approach, potentially affecting both physical and paper markets.
Conversely, Brazilian farmers enter 25/26 financially strong but historically undersold, with limited credit availability. With the wide arabica/robusta arbitrage, Brazil’s internal coffee blend could dramatically shift from 70% arabica and 30% robusta to the reverse ratio, an approximately 8 million bag swing annually.
Brazilian nurseries are fully booked years ahead, suggesting robusta (conilons) production could eventually reach Vietnam-like levels (30 million bags).
Lower-income global consumers might reduce coffee consumption, particularly soluble products in Asia, although current data remains uncertain. U.S. demand may soften due to consumer pantry stockpiling, though retail price hikes remain minimal.
Upcoming factors such as the EUDR regulations and U.S. tariff announcements ("Liberation Day") add complexity to the market outlook.
Overall, without weather disruptions, monitoring Dec26 NY prices will be crucial, as a normal production cycle and subsequent global production spike seem inevitable.
The coffee market continues to resemble Churchill’s description of Russia: “a riddle wrapped in a mystery inside an enigma.”
