Coffee Prices Rebound Strongly After Weekly Sell-off

Coffee markets concluded a volatile week with September Arabica and Robusta contracts rebounding on Friday after a significant sell-off. September Arabica coffee (KCU26) futures rose by +4.40 (+1.42%), while September ICE Robusta coffee (RMU26) futures gained +49 (+1.32%). This recovery followed a sharp decline on Thursday, supported by apparent pre-weekend short-covering by investors.

Thursday's downturn was triggered by a global coffee production forecast released late Wednesday by the U.S. Department of Agriculture (USDA). The USDA projected a record global coffee output of 189.7 million bags for the 2026-27 season, a 6.0% increase (10.8 million bags), primarily due to improved growing conditions in Brazil. According to the forecast, global Arabica production is expected to rise by 12% year-over-year, while Robusta production is anticipated to decline by 0.7%. World ending stocks are also projected to increase by 1.9 million bags to 26.3 million bags.

Market price movements have also been influenced by harvest progress and inventory data from Brazil. As of July 15, Brazil's 2026/27 coffee harvest was 64% complete, lagging behind last year's comparable level of 77% and the five-year average of 70%. Heavy rains in Brazil had previously disrupted fieldwork and raised concerns about potential crop quality deterioration, thereby supporting prices. However, the outlook for drier conditions in Brazil's coffee-growing regions in the near term could accelerate the harvest, potentially putting downward pressure on prices.

On the inventory front, mixed signals were observed. ICE Arabica coffee inventories fell to a 2.5-year low of 311,317 bags on Friday, acting as a bullish factor for prices. Conversely, ICE Robusta inventories climbed to a 4-month high of 4,254 lots on Wednesday, though they slightly decreased to 4,200 lots on Thursday, continuing to weigh on Robusta prices.

In a broader economic and political context, markets processed President Trump's late-Thursday announcement of broad tariffs. The new tariffs, ranging from 10% to 12.5% on 60 nations, replace an expired 10% global import tax. However, Brazil's Development, Industry, Trade and Services Minister Marcio Elias Rosa stated that Brazilian farm products, including coffee, meat, and orange juice, would be exempt from these new tariffs. This implies that the new tariffs are not expected to disrupt coffee exports to the US.

Looking ahead, concerns that an El Niño weather pattern could negatively impact Brazil's coffee crop next year remain a bullish factor for prices. The US Climate Prediction Center reported on July 8 that the El Niño pattern emerging in the equatorial Pacific could be one of the strongest in over 75 years, potentially leading to floods, droughts, and temperature fluctuations that could hinder coffee production in Asia and South America. Furthermore, reduced liquidity in the market, exacerbated by increased margin requirements for coffee futures by the Intercontinental Exchange (ICE), has led to heightened volatility and commodity funds closing positions. This situation introduces uncertainty into market expectations, with harvest progress and weather conditions in Brazil remaining critical determinants of coffee prices in the coming period.