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Coffee Market Update – May 2025
May was defined by steady liquidation in the paper markets and mounting caution on the physical side. Arabica futures trended lower, with the NY market falling from $399.30 to $341.20—a clear reflection of non-commercial and index long liquidation. Nearly 2.6 million bags were sold over the month, pushing cumulative 2025 sales of futures to above 9 million bags. Commercial shorts stepped back in parallel, leaving the market under pressure with no clear buyer.
Physical Coverage Lags Amid Trade Reticence
Roaster coverage remains historically low. The trade remains reluctant to make traditional forward offers—particularly with liquidity thin and the inversion charging a premium into Q2. This hesitation is matched on the demand side, where roasters are holding back, waiting for more clarity on Q2 consumption trends. But waiting has its risks. With shipping disruptions still a factor and Brazil differentials expensive, delaying coverage into Q3 could mean battling both logistical bottlenecks and tighter certified stock availability.
Stocks Still Low – But the Mood is Bearish
Despite low destination inventories—3–3.5 mln in the US, 7.07 mln in Europe, and 2.2 mln in Japan—physical buyers are not chasing the market. Certified stocks rose modestly in NY (up 74.7k bags), driven by Honduras and Mexico, but Brazilian certs continue to decline. Brazil certs are now offered flat to small discounts versus July (Antwerp basis)—a major shift, especially compared to FOB offers. This discount structure likely continues to support drawdowns from ICE stocks.
Brazil's Role and Robusta Dynamics
Brazil's 2025/26 arabica crop is estimated at 38–41 million bags, with only ~20% sold to date—well below normal. Analysts broadly expect a return to surplus in 2026/27, assuming normal weather and continued farm renovations. Domestically, Brazil continues its pivot toward robusta. With conilon now comprising 75–90% of internal demand, we may see an increase of 6–9 million bags in domestic conilon use year-on-year.
Demand Concerns and Shifting Preferences
Despite the traditionally inelastic nature of coffee demand, signals of strain are growing. Brazil’s ABIC reports a 5.13% YoY decline in domestic coffee use from January to April, accelerating to nearly -16% in April. Such a drop, alongside rising robusta usage and low physical coverage, hints at meaningful structural shifts across the value chain.
On the Paper Side – Exposure Thins Out
The speculative community has stepped back. Gross long non-commercials and index positions have sharply reduced. Meanwhile, smaller roasters appear to be pricing forward—likely in July and September—helping explain some of the commercial short covering. Calendar spreads, particularly Dec/Mar and Dec/Dec, are beginning to ease, suggesting the market is reassessing tightness assumptions. The weekly chart shows a steep decline, but it’s too early to call a definitive top. Key support levels—especially around 323cts (200DMA)—will be critical in the coming weeks.
Arabica - Dec25/Dec26 Spread
Weather Watch and Regulatory Shifts
Frost risk looms large with the classic June 20–July 20 window approaching. A serious cold snap would be a gamechanger, potentially driving prices back toward $4. On the regulatory front, ICE’s May announcement to shift toward 20MT contracts and FIBC container allowances signals a modernization push, aligning specs more closely with Brazil’s export format.
Final Word: Positioning Remains Light and Risk Skewed
With the trade backing away, stocks still low, and weather risk on the horizon, the market remains precariously balanced. Roasters are vulnerable—not just on physicals but also on paper. A pullback toward $3 would likely trigger aggressive buying. But any frost—or a sudden tightening in cert stocks—could flip the narrative fast. The next month may set the tone for the rest of the year.
