Summary
Key Takeaways:
Geopolitics driving volatility - headline risk and Middle East tensions continue to set the macro backdrop.
Cotton balance sheet mixed - planted area up 4% (bearish), but increased acreage in Texas increases abandonment risk (bullish).
Positioning driving cotton rally - ~30k lots of short covering; commercials selling into strength.
US Cotton exports are improving and if continued the USDA will likely have to adjust their forecast for 25/26.
Coffee supported by strong diffs, tight nearby supply, and firm spreads.
Farmer selling delayed - Brazil/Colombia producers well capitalised and holding back supply and waiting for a rally in flat price.
Medium-term pressure remains - coffee likely to soften as new crop arrives and supply normalises.
Markets continue to be dominated by Truth Social posts and Wall Street Journal scoops. The U.S. appears to be looking for an exit from Iran and has suggested it could end the war without permanently reopening the Strait of Hormuz, leaving NATO and regional countries to deal with the fallout. We find this outcome highly unlikely.
If oil prices remain elevated and downstream products stay high, the U.S. could see gasoline prices rise toward $4 per gallon, which would be politically damaging ahead of the midterm elections.
Given this, and the continued deployment of troops into the Middle East, further escalation would not be surprising if negotiations break down. Iran has stated it has “zero trust in the U.S.” and it is not seeking a ceasefire, but “complete peace,” whilst also requesting reparations and a full halt to hostilities. These demands I find highly unlikely to eventuate and I would expect further escalation in the coming days.
Overnight the prospective planting report was released:
Planted acres are 9.64 million acres in total, 9.51 million acres of upland cotton, an increase of 4 % YoY. This will likely add ~0.35 million bales to new crop ending stocks.
Planted acres in Texas is 5.5 million bales and the abandonment in 24/25 was 24.5%. In 22/23 it was 70% and given the recent dry weather, in Texas and the concentration of the crop in Texas which is mostly dry land Cotton it wouldn’t take much for the Abandonment level to go higher, the 10-year average ~23.4%.
The Coffee market over the past month has rallied from 280 c/lb to 317 c/lb before dropping recently dropping below 300 c/lb. All the geopolitical chaos is affecting the market, and it doesn’t help that diffs and spreads are rallying. Notably NY 2 17/18 Fine Cup was most recently trading 58 over the July Contract…. Whoever is short those diffs are not having a good month. Exports continue to be at a snail’s pace out of Brazil and Colombia with farmers well capitalised, biding their time, unwilling to sell and waiting for a rally.
Cotton
Cotton Price Action
Cotton has rallied up to 71 c/lb on the May contract ahead of the initial plantings report, before subsequently falling around 100 points ~70. The report carries both bearish and bullish elements.
On the bearish side, planted area is up 4%. However, a large share of this increase is concentrated in Texas, where recent weather has been dry. This creates upside risk if subsoi moisture remains poor and farmers choose to abandon acreage. Abandonment reached 37% last year, and during the high-price environment of 2021/22, it was closer to ~60% in Texas…
The recent rally has reduced some of the carry in the front of the curve, with backwardation emerging from K27 onwards.
This rally has been driven mostly by specs liquidating, with specs buying back ~33k lots. Looking at the curve, it is clear the market is no longer in carry from the March 2027 contract.
ICE Cotton No.2 front month:
Spreads (N/Z):
Cotton Positioning
CFTC Managed Money: Managed Money has reduced its short position as the market has rallied, covering ~30k lots over the past three weeks.
Commercials, by contrast, appear to have sold into the rally, adding roughly ~30k lots over the same period.
US Cotton Export & Sales
US Cotton Exports, continue to be strong, with pace picking up over the past two weeks. We project that the U.S. will export ~11.6 million bales, which is an increase of 0.3 million bales since our last report.
If this trend continues and pace accelerates further, our projections will likely be revised higher, potentially exceeding 12 million bales. We don’t expect this to be in the April WASDE however adjustments to exports are more likely in the May and June WASDE.
Despite this we don’t expect this to have a major impact as the carryout is still very high and new crop cotton production, based on current planted acres, is expected to add 0.35 million bales.
Cotton On-Call
No major outliers in the report other than there remains a large number of OC purchases in the new crop December contract.
Outlook for Cotton
Bull Case
BACA is passed and the current crop US balance sheet is impacted
Dry weather and low subsoil moisture causing abandonment in Texas and the U.S. in general
High Urea costs causing issues with the crop
Cessation of hostilities in the Middle East
Bear Case
Demand takes a further hit from the war in the Middle East
Synthetic fibres continue to gain market share and PSF pricing fall.
Weather is perfect in Texas and the United States
Base Case
Whilst spreads stay in a wide carry, speculators have little incentive to go long the market and every incentive to stay short
The key metrics to track will be the crop progress and we await the results and what look out for opportunity in the 2nd half of the year.
Coffee
Coffee Price Action
Coffee prices have been gyrating around as the market tries to find its footing. Most of the recent rally can be attributed to increased spec positioning. It doesn’t help that the front spreads have been rallying and diffs in Brazil are about as high as they have ever been.
Nearby supplies at destination remain tight, at least until new crop Brazil begins to reach the market.
ICE Arabica front month:
ICE Robusta front month:
Arabica K/N:
Robusta K/N:
Physical Pricing
Brazil differentials: Robust has come off dramatically, whilst Arabica stays strong. If someone is short those Fine Cup Diffs they are certainly not having a good month…..
Central American and Colombian Diffs continue to strengthen
Indonesian and Vietnamese diffs are flat WoW
Certified stocks: have slide ~50k bags however for Arabica and they have declined around ~80k bags in the last month
Coffee Positioning:
For Arabica CFTC Managed Money: Longs have gradually been building up their position in the recent rally and during the sell off.
For Robusta CFTC Managed Money: Robusta has not seen
Exports:
Brazil and Colombia export pace: Much slower YoY due to smaller crop, tariffs and high differentials.
Honduras and Indonesian Export pace: Honduras has been shipping more coffee faster this market year due to a favourable basis and weaker currency.
Vietnam exports: Exports are healthy as demand ahead of the arrival of Conilon. Uganda has been overall strong this market year.
Outlook:
Bull Case
Weather shock in Brazil (frost, drought) cuts 2026/27 off-year yields further as the market already structurally vulnerable
Blocking of Strait of Hormuz leading to freight and insurance spike, physical coffee movement stalls, cert stocks draw accelerates
Geopolitical risk premium pulls passive/macro money into commodities complex
Curve deepens into backwardation leading to Sep/Dec spreads rally and causing CTAs and specs add length, amplifying flat price move
Roasters caught short coverage forced to chase if the 75m bag crop misses
Basis rallies alongside flat price as nearby supply remains constrained
Bear Case
Brazil 2026/27 crop comes in on schedule and Arabica output potentially up to ~50m bags
Rabobank sees a surplus of 8.6m bags in 2026/27, projecting Arabica prices down ~ a third by late 2026
Brazilian farmer capitulates on old crop and export volumes surge after a 20% YoY decline in 2025
US tariff removal normalises Brazilian trade flows, roasters return to regular procurement
Iran conflict short-lived, oil normalises, freight and insurance ease, cert stock rebuild accelerates
Curve flips to contango, carry economics improve, CTA money reverses, flat price grinds lower
Base Case
Closer to bear case, but the market won't fully price 2026/27 supply until new-crop harvest is confirmed
Near-term focus on Sep/Dec and Dec/Mar spreads, curve shape is the leading signal
Elevated Brazilian and Colombian diffs look like a structural short rather than genuine scarcity; expect compression once new-crop volumes arrive
Conilon diffs are an important signal, once farmers see crop viability, diffs collapse; same dynamic likely for Arabica with a lag
Roaster coverage currently above 2025 average, limits demand-driven spikes in nearby contracts
Base trajectory: cert stocks rebuild gradually, diffs compress on harvest, flat price drifts lower as surplus outlook firm’s diffs and we would expect this to ease when the new crop harvest arrives.
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