After a tumultuous 2025, the coffee market slowly shifts towards a more balanced situation.
The coffee market is in transition, with some relief expected from the supply tightening that has gripped the industry in recent seasons as the next Brazilian harvest becomes available later in the year. Bulls would argue that the market will rally ahead of this and even run to new highs, as, in theory, the physical market is still constrained. However, markets are forward-looking and will start to respond to future supply rather than continue to react to what amounts to yesterday’s news.
Rising Global Export Volumes Offset Brazilian Decline
The market should already have adjusted for world stocks being at their leanest ever on an outright basis and relative to consumption, and is now considering how much relief will be possible from a combination of improving output and slower demand growth after successive seasons of high prices. Producers have been incentivized to expand production, as evidenced by rising export volumes.
Although Brazilian shipments have slowed considerably, those from other origins are increasing. Asia and Oceania’s exports are up 38%, Africa’s increased by 13.3%, and Mexico and Central America rose 81.3%, from 0.45 million bags in December 2024 to 0.82 million bags in December 2025. South America was the only region where exports declined, down 15% to 4.65 million bags in December 2025 from 5.47 million bags in December 2024. The cumulative total of non-Brazilian exports has more than offset the decline from the leading producer. Focusing on Brazil alone provides a skewed or incomplete market narrative.
Markets stop climbing when there is no fresh news to feed a bullish narrative, and they also start applying the brakes to discourage continued production with reckless abandon, which could lead to a vast oversupply for multiple seasons and severely depressed prices as a result. To avoid this boom-bust cycle and a major price crisis that deeply impacts farmers, it is better for the market not to climb to dizzying heights.
It would be disastrous for the entire supply chain if the coffee market were to become a victim of high prices, as the cocoa market has been. While there is a key distinction between the cocoa and coffee situations due to the set prices guaranteed to cocoa farmers this year in both the Ivory Coast and Ghana, which are well above current market levels, extreme price pressure could nonetheless have the same negative consequences.
Exporters that made commitments to secure supply at higher price levels will not be able to afford to sell coffee into a declining market at a loss. Obtaining working capital becomes challenging. Buyers become reluctant to commit to anything beyond a hand-to-mouth basis when the risk of a price decline is imminent, and do not want to rebuild inventory at above-average prices. This tends to add to market selling pressure.
Brazil’s 2026/27 Crop Outlook
The Brazilian 2026/27 crop is now developing under much better conditions than the prior two years. Temperatures have moderated, so there is no additional stress from above-average heat that harms bean sizing and quality — a problem that was evident during processing in the past two harvests. Abundant rainfall and cooler temperatures should lead to more uniform production, potentially increasing the share of the harvest processed as semi-washed coffee and increasing the availability of Brazilian coffee suitable for delivery against the New York contract, helping to finally rebuild low certified stocks. However, it’s unlikely the market has considered this yet.
Actual volumes delivered to the Board would also depend on the market structure, the steepness of backwardation or inversion between the nearby contract and deferred positions, and whether Brazilian coffee is at tenderable parity, meaning whether the Board is the most attractive buyer for this coffee relative to other cash-market offers. Should Brazil be a large deliverer, this would be the nail in the coffin for the market, as it would cause backwardation to collapse and ease concerns about deliverable supplies, which have been a hallmark of the market for the past two years. Honduran differentials have also weakened, with some coffee likely to appear at the Exchange during the crop's peak harvest.
Most recently, strength in the Brazilian real against the US dollar has led to a firming of the Brazilian differential, as producers reduce forward sales and hold back on inventory. This has been reflected in a more limited export flow from Brazil. But this should not be misconstrued, as Brazil has depleted its coffee stocks and will have little coffee to ship before the new-crop arabica harvest becomes available in the third and fourth quarters of this year. If producers and exporters are holding back physical sales, it could have the opposite effect later, with a rush to sell coffee amid an improved supply outlook. The favorable weather now is also a boost for the 2027/28 vegetative growth.
Logistics Issues Slowly Stabilize
While the market is transitioning from a structural shortfall to a more balanced situation overall, that doesn’t mean there won’t be a few bumps in the road, with the issue of certified stocks being the most prominent. Logistics issues persist due to the diversion of Asia-to-Europe transit routes.
There has been an increase in passage through various straits to the Suez Canal over the past several months, with no Houthi threats. A move to the second phase of the Peace Plan in Gaza could give major carriers greater confidence to begin scheduling additional routes through the territory rather than longer voyages around the Horn of Africa.
The total volume remains subdued, down 60% from the pre-diversion passage. Geopolitical risks remain, and full normalization could take all year and even into 2027, but reduced cargo afloat could help rebuild European stocks over time. Freight rates have already begun to decline, indicating that more carriers are likely to return to shorter routes and realign trade flows. This could also widen the price arbitrage between arabica and robusta if the robusta market softens more rapidly. In the meantime, the arbitrage is narrowing with arabica prices falling while robusta prices are holding steadier.