Summary

Key Takeaways

Volatility has surged across Commodities markets, with implied daily moves now in Brent Options ~7–8%
The Coffee Physical markets remain firm and increasingly decoupled from futures
Cotton’s rally has been driven largely by short covering
USDA planting data is the next key catalyst

Volatility has surged amid increasing geopolitical uncertainty and headline-driven trading. On Monday, Trump commented that he was delaying planned strikes on Iran’s power grid for five days, citing “productive conversations” and claiming there were 15 points of agreement with Tehran. The announcement triggered a strong market reaction, with risk assets rallying and oil prices falling sharply. Iran denied that any talks were taking place, and the IRGC described Trump as “deceitful”, although an Iranian source later acknowledged that some outreach had occurred.

By Tuesday, Trump had shifted tone again, declaring “we’ve won this” and claiming Iran had offered a valuable “prize” related to the Strait of Hormuz. Pakistan later offered to host peace talks, while an Israeli official suggested planning may already be underway.

ATM IV on Feb 24 was ~48.5% and has most recently risen to ~123.7%. Applying the rule of 16 implies daily moves of 7.73% compared to ~ 3% a month ago, which is broadly consistent with the ~10% moves currently being observed in response to headlines.

In late February, the coffee market fell to a 16-month low, pressured by favourable weather, optimism around a large 2025/26 crop, increasing certified stocks moving onto the board, and long liquidation. This month, however, the tone has turned more supportive. Geopolitical tensions in the Middle East have increased shipping costs, and Brazil is yet to show a meaningful recovery in exports, with February green coffee exports down 27% year-on-year to 2.3 million bags, and certified stocks have started to leave the board.

The domestic physical market continues to decouple from ICE New York futures, with prices holding at persistently high differentials. In many cases, offers are still above comparable Colombian high-grade levels, highlighting the strength of local pricing power. Producers have consistently used futures strength as an opportunity to push quotes higher, while largely resisting downward adjustments when the board weakens. As a result, premiums remain firm across all grades. Farmers are holding firm, are well capitalised, and are unlikely to give in following the recent rally.

Over the past month, cotton prices have moved higher, mainly because a heavily short market has been forced to cover. The rally has been supported by a softer US dollar and rising concern about weather risk ahead of US planting, particularly in Texas and the southern Plains, where dry conditions remain an issue. While export demand has been mixed, it has been firm enough to support the rebound, and the market has also taken some encouragement from restrained acreage expectations. For the most part, the move has primarily been driven by positioning shifts; however, the USDA planting survey on March 31 is likely to be the key catalyst for the market’s next move, either up or down.

Read more on the Cotton and Coffee market updates below.

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Cotton

Cotton Price Action

Cotton has rallied for most of March on the back of dry weather in the U.S., which has triggered substantial short covering. The key factor the market will be looking at is the upcoming Planting Intentions report, set to be released on the 31st of March. This will allow us to gauge whether there has been any substantial change from what the National Cotton Council projected in their survey released in early March. Until then, the market is likely to gyrate around 67–69 c/lb.

ICE Cotton No.2 front month:

Spreads (N/Z):

Cotton Positioning

CFTC Managed Money: Reduced their short by 30,000 lots over the last three weeks, which accounts for most of the move from 63 to 69. The gross short is still very large, see the Softs Positioning table at the bottom of this report.

US Cotton Export & Sales

US Cotton Exports, continue to be strong. The last four weeks of exports have picked up their pace. We project that the U.S. will export ~11.3 million bales, which is an improvement of 0.4 million bales since our last report. The USDA is projecting 12 million bales of exports for this marketing year, which given the rally in polyester fibres if there could be an uptick of exports for the rest of the year potentially front loading supply.

Cotton On-Call

There continues to be a large amount of purchases for the crop December contract

Outlook for Cotton

Bull Case

If the Buy American Cotton Act is passed
Material impacts in supply in Brazil, Australia and India
Large cut in acreage in the March 31st USDA initial planting report
High oil prices cause downstream products such as polyester fibres to continue rallying causing Cotton to become more competitive.

Bear Case

Demand takes a further hit from the war in the Middle East
Synthetic fibres futures drop on the ZCE and continue to gain market share
The recent high prices cause farmers to plant more than indicated by the NCC survey in early March and cause an increase in acerage.

Base Case

The next catalyst is the initial planting report on the 31st of March and the market continues gyrating until then.
Specs have very little incentive to stay long while the market is in carry and are more likely to go short once more if the upcoming report does not indicate lower acerage

Coffee

Coffee Price Action

Coffee prices have rallied due to the war in Iran and the blocking of the Strait of Hormuz, causing worldwide disruptions. There has been fear of increased shipping costs, insurance and financing which directly impact the Coffee market. Additionally, the recent draw of certs from the board, stiffly high diffs in Brazil and Colombia and squeeze on spreads is giving every incentive for specs to go long once again.

ICE Arabica front month:

ICE Robusta front month:

Arabica K/N:

Robusta K/N:

Physical Pricing

Brazil differentials: Arabica is staying incredibly strong, and it seems that someone is short the diffs and/or there is an incredible reluctance to sell by the farmer

Diffs in Central America and Colombia have strengthened over the last month, with Colombian Excelso EP last setting at 46 over Coffee C

Indonesian EK1 has stayed relatively flat, while Vietnamese Gr2 has strengthen over the last month.

Certified stocks: Since the 18th of March certs have begun to draw, within the last week there has been ~50 k bags drawn for Arabica and for 40 k bags for Robusta

Coffee Positioning:

For Arabica CFTC Managed Money: During the last three reports, MM has increased their longs by roughly 6000 lots which corresponds with the ~ 30 cent rally.

For Robusta CFTC Managed Money: Longs steadily reducing and shorts getting slightly more confident.

Exports:

Brazil export pace: Much slower YoY due to smaller crop, tariffs and high differentials.

Colombia: Exports remain healthy.

Vietnam exports: Exports are healthy as demand ahead of the arrival of Conilons from Brazil.

Ugandan exports: Slowing down in a typical seasonal fashion