Coffee Prices Decline Amid Speculative Overreaction, Suggesting Rally Was Overdone

September arabica coffee (KCU26) closed down -7.80 (-2.46%), while September ICE robusta coffee (RMU26) fell -131 (-3.38%) on Wednesday.

Coffee prices dropped significantly on the second trading day, reversing nearly all gains from Monday’s sharp rally. The surge to recent highs pushed prices into overbought territory, triggering technical selling and profit-taking. Additionally, Intercontinental Exchange’s increased margin requirements for coffee futures exacerbated long liquidation pressures, further pressuring prices.

On Monday, arabica coffee reached a 5.5-month peak, and robusta hit a 5-month high due to delayed harvesting in Brazil. Safras & Mercado reported that Brazil’s 2026/27 coffee harvest was 52% complete by July 1, compared to 60% last year and the five-year average of 55%.

Coffee prices also benefited from meteorologist Rural Clima’s forecast of mid-July rains in Brazil, which could harm crops. Heavy rains over the past month disrupted fieldwork and may have reduced coffee quality. Brazilian farmers are withholding sales, anticipating price increases and bracing for potential impacts from this year’s El Niño.

ICE coffee inventories have declined over the past three months, supporting prices. Arabica inventories hit a 2.25-year low of 354,261 bags on Wednesday, while robusta inventories reached a 3.5-month high of 4,183 lots by Tuesday.

Concerns that El Niño could damage Brazil’s 2026/27 coffee crop are bullish for prices. Coffee trader Commercial warned that El Niño might delay rains in Brazil during September and October, when flowering typically occurs, reducing the 2026/27 yield. The US National Oceanic and Atmospheric Administration (NOAA) estimates a 67% chance of a “Super El Niño,” the strongest on record. Japan Meteorological Agency confirmed an El Niño pattern on June 10, signaling potential floods, droughts, and temperature fluctuations affecting coffee production in Asia and South America.

Somar Meteorologia reported no rain in Minas Gerais, Brazil’s largest coffee region, during the week of July 5.

On June 9, arabica coffee fell to a 19.25-month low, and robusta dropped to a 2.25-month low due to expectations of a bumper Brazilian crop. The USDA’s Foreign Agricultural Service (FAS) projected a record 2026/27 Brazil coffee crop of 71.9 million bags, up 14% year-over-year. Rabobank revised its global arabica surplus estimate to 9.5 million bags from 7.0 million. Meanwhile, Cecafe reported May green coffee exports rose 4.2% year-over-year to 2.73 million bags.

Vietnam’s surge in robusta exports is bearish for prices. Vietnam’s 2026 coffee exports (Jan-Jun) rose 7.3% year-over-year to 1.05 MMT, while 2025 exports jumped 17.5% to 1.58 MMT. Projections indicate 2025/26 production could reach a 4-year high of 1.76 MMT (29.4 million bags).

The International Coffee Organization (ICO) reported global exports fell 0.3% year-over-year to 138.658 million bags in the current marketing year (Oct-Sep). The USDA’s FAS forecast a 2% increase in 2025/26 world coffee production to 178.848 million bags, with arabica production down 4.7% to 95.515 million bags and robusta up 10.9% to 83.333 million bags. Brazil’s 2025/26 production is expected to decline 3.1% to 63 million bags, while Vietnam’s output is projected to rise 6.2% to a 4-year high of 30.8 million bags. Ending stocks are forecast to contract 5.4% to 20.148 million bags from 21.307 million bags in 2024/25.

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