Note CFTC Reporting for Arabica coffee is still delayed due to the US government shutdown
Any market or trading views are in no way are to be considered investment advice.
October Coffee Market Review
October offered a lesson in humility for coffee bulls and bears alike. Prices feinted lower, then vaulted to 438¢/lb before settling back, leaving traders with more questions than conviction. Behind the volatility: shrinking exchange stocks, a still-inverted curve, and weather forecasts that shifted daily.
Basel set the tone
At the SCTA gathering in Basel, presentations converged around a Brazil 2026/27 production profile in the 75 million bag range—ECOM at 75.8 million (48m arabica/28m robusta), OFI at 75 million (49m/26m). Notably absent were the 80+ million whispers that typically surface under perfect early conditions. The pattern held: optimistic early projections revised lower as weather reality and actual pruning practices emerge.
Price action
The first half of the month saw NY trade a modest 365-390¢/lb range as follow-up rains to late September flowering arrived but underwhelmed. Tension built in the second half as weather models diverged on precipitation forecasts. Variables aligned for a spike: an upper-level high threatening to limit rainfall, declining certified stocks, roasters pricing hand-to-mouth against Dec25, and restricted Brazilian farmer selling. The market drove to 438¢/lb on October 22 before profit-taking and improved rain forecasts pared gains. Brief tariff relief headlines pushed prices below 390¢/lb, but lack of policy follow-through and continued roaster fixations against a sliding cert count lifted prices back through 400¢/lb into month-end.
Weather and agronomy
Flowering arrived on schedule in late September and early October. The critical variable now is follow-up moisture and temperature stability for cherry-set. Sul de Minas and adjacent belts saw a dry skew through mid-month before conditions improved. Vietnam's coffee heartland largely avoided the worst of the typhoon damage; concerns there center on harvest timing and quality rather than catastrophic loss.
Stocks and structure
ICE NY certified arabica stocks fell 27% during October, reinforcing that destination inventories remain historically lean. The curve held its inversion with Dec25/Mar26 near +20¢/lb a structure that penalizes shorts and eliminates systematic selling pressure. Systems will not short an agricultural futures market in a meaningful way with a double-digit annual inversion. This structure keeps speculative shorts on a tight leash and raises the threshold for bearish conviction.
Trade flows and differentials
October brought Brazil FOB differentials to tenderable parity, though volumes remained limited. Brazilian farmers, very well capitalized, continue to sell only on scale-up rallies, and even at R$2,300-2,400/bag their selling has been less aggressive than expected. Tariffs continue to suppress Brazil-to-U.S. flows, nudging roasters toward non-Brazil milds and robustas. Central America's approaching harvest pressured physical differentials, with Honduran and Nicaraguan offers slipping to low single digits over the 46k terminal. Colombia closed the coffee year around 14.87 million bags the best performance in years. Vietnam entered harvest with scarce old-crop and firm farm-gate pricing supporting London Robusta front month contract.
Demand signals
Demand indicators stayed mixed. Brazil's domestic roasters reported a 5.41% year-over-year volume decline for January-August, with national brands increasingly labeling 100% conilon blends. In developed markets, brands used price to protect revenue while acknowledging pressure on volume and mix. Roaster coverage remained stubbornly short-term—a rational response to policy uncertainty and expensive carry.
The bull case
The structural argument for higher prices rests on several pillars: certified stocks down 27% in October with the annual inversion strengthening across every contributing spread increment; Brazilian farmers capitalized enough to withhold scale-up sales despite prices near R$2,300-2,400/bag; roasters materially under-covered on both futures and physicals with decent spot demand; speculative arbitrage traders and fundamental hedge funds showing only modest short participation; and trade houses avoiding inventory carries while shorting forward Brazil differentials, potentially setting up Q1 differential tightening.
The bear case
The counterargument centers on supply rebalancing and policy risk. Central America's new crop approaches harvest materially undersold. Vietnam, despite typhoons, carries a sizable crop with elevated London prices pressuring differentials. The overall NY and London futures hedging balance sheet may shift net negative over the next three months. Political risk looms large: a Trump administration pullback from the 50% Brazil tariff would be negative for KC, while Vietnam coffees appear exempt from aggressive trade action. The December NY roll and January 2026 rebalancing pose tactical risk will there be stoppers for the Z/H switch at +20¢, or will the premium collapse post-first notice day? U.S. demand continues softening. Most importantly for the longer term, $4/lb coffee incentivizes new plantings, maximum husbandry, and aggressive harvesting globally. Colombia's 14.87 million bag crop signals improving supply from traditional milds.
Policy risk remains the wild card
The legality of broad tariff actions reached the U.S. Supreme Court in early November, with a decision expected in December. Expectations lean toward aspects of the tariff implementation being ruled unconstitutional. Curtailment or targeted exemptions would ripple quickly through blend economics and flow patterns, particularly for Vietnam robusta. The EU's due-diligence regime, delayed on timing, remains a 2025 implementation story.
Playbook
The market is shifting from Brazil as the sole sizable physical seller to a more balanced supply picture with Colombia's main crop, Central America, and Vietnam all contributing. Absent a weather shock, the tactical approach remains: fade 15-20% swings, respect the inversion, and let structure rather than opinion set risk parameters. Producer selling remains disciplined; roaster coverage stays shallow. That combination argues for nimble positioning over grand directional bets.
Key risks to the view
Weather remains the primary wildcard insufficient follow-up rains in Brazil would tighten nearby structure further. A surprise rebuild in certified stocks would calm the market and cap rallies. Court decisions or bilateral tariff exemptions could rewire flows in weeks, not months. Deeper demand elasticity in the U.S. and Brazil could cap rally extensions even with tight structural support.
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