Tuesday, September 16, 2025

 

☕ Coffee (Arabica, ICE “KC”) — Outlook to 2026

Where we are (Sep 15, 2025): Nearby Arabica trades ~405–410 US¢/lb after a parabolic 2025 on weather stress, thin deliverable stocks, and policy shocks. The Dec ’25 contract is ~400 ¢/lb.

Big picture 2025/26: Official global production is pegged at a record ~178.7 M bags (robusta-led) versus ~169.4 M bags consumption; ending stocks remain tight near ~22.8 M. Inside that headline, arabica is the pinch point: Brazil’s arabica is down year over year on heat/drought, and multiple private houses flag an arabica deficit on the order of ~–8.5 M bags for 2025/26.

🤖 1) Brazil 2025 flowering & 2026 crop execution (↑ to 9.5/10)

Why it matters: Brazil is the swing producer for arabica; 2026 outcomes hinge on Sep–Oct 2025 flowering and the trees’ carryover stress from 2024–25 dryness/frost. Local co-ops in Cerrado report frost-related damage with six-figure bag impacts to 2026 potential.
What we’re seeing: The latest national estimate cuts 2025 output to ~55.2 M bags total (arabica ~35.2 M), confirming a weaker arabica “off” year. Talk of a “super 2026” has faded unless rains arrive and stick through flowering and early fruit set.
Why 9.5/10? A missed flowering or poor fruit set is the cleanest path to a 2026 arabica shortfall big enough to rip futures.

🌍 2) U.S. 50% tariff on Brazilian coffee (new 9.0/10)

Why it matters: The U.S. typically imports ~8 M bags from Brazil. A 50% tariff (effective Aug 6, 2025) distorts flows, inflates U.S. landed costs, and channels more hedging into NY “KC,” structurally supporting futures. Brazil trade groups directly linked August’s vertical move to the tariff shock.
Why 9.0/10? If the tariff persists into 2026, basis stays elevated and retail prices remain sticky even if global aggregates look “adequate.”

🧭 3) EU Deforestation Regulation (EUDR) go-live (↑ 8.8/10)

Why it matters: Traceability/geolocation rules begin Dec 30, 2025 for large/medium operators (SMEs Jun 30, 2026). Compliance temporarily shrinks “eligible” supply and reprices differentials.
Why 8.8/10? Early-2026 could see EU-grade shortages, wider diffs, and higher KC via arbitrage.

📉 4) Exchange (ICE) certified stock drawdown (↑ 8.5/10)

Why it matters: Deliverable supply amplifies squeezes. Arabica certified stocks ~0.67–0.78 M bags in early September—thin for the season.
Why 8.5/10? With low float, any weather or logistics hiccup can air-pocket futures into blow-off spikes.

🌡️ 5) ENSO/La Niña watch & Brazil rainfall tail-risk (holds 8.0/10)

Why it matters: La Niña-skewed patterns risk ill-timed rain (flower knock-off) or too-little rain (poor fruit set) in Minas Gerais during Sep–Oct. Early September dryness was flagged; late-September storms are pivotal.
Why 8.0/10? The timing of rain matters as much as totals; a mis-timed pattern is enough to dent 2026 yields.

🇻🇳 6) Vietnam robusta recovery vs. water stress (↑ 7.8/10)

Why it matters: Robusta tightness forced blend shifts. A rebound toward ~31 M bags in 2025/26 would cap KC via spread relief; persistent water stress/tree fatigue would keep robusta tight, forcing arabica to carry the world.
Why 7.8/10? Binary swing factor: a real rebound cools spreads; a miss extends the squeeze into 2026.

🏛️ 7) Policy & trade fragmentation beyond U.S. tariffs (↑ 7.5/10)

Why it matters: Frictions and exemptions remain fluid. Retaliation or parallel measures could redirect flows to EU/Asia, move basis, and distort origin diffs.
Why 7.5/10? The tariff is already biting; add-ons would compound tightness.

💵 8) FX (BRL) & producer selling (↑ 7.0/10)

Why it matters: A stronger BRL curbs farmer selling; a weak BRL unleashes hedges and pressures KC. Policy/inflation noise keeps BRL volatile.
Why 7.0/10? Not first-order, but magnifies weather/policy shocks.

🏭 9) Demand elasticity & substitution (holds 6.8/10)

Why it matters: 2025 sticker shock clipped demand by roughly –0.5%. 2026 could stabilize if prices plateau; if retail rises further (tariffs/EUDR), more down-trading or substitution (robusta/other beverages) caps upside.
Why 6.8/10? A genuine headwind to the $10/lb path unless supply breaks further.

🚢 10) Logistics, certifications & differentials (new 6.5/10)

Why it matters: Tight washed/tenderable pools, evolving ICE rules/diffs, and shipping bottlenecks can widen basis and squeeze deliverables.
Why 6.5/10? Secondary, but adds fuel to any fundamental spark.

📈 11) Spec positioning & financial flows (↑ 6.5/10)

Why it matters: 2025’s run featured panic buying in a low-float market. Another weather scare + thin stocks invites CTA/momentum flows through round-numbers.
Why 6.5/10? Not fundamental—but can yank KC vertically.

🧪 12) “Record global production” optics vs. arabica reality (new 6.0/10)

Why it matters: The record headline is robusta-led. Inside, Brazil arabica declines and exporters stay cautious. The market trades the arabica bottleneck, not the aggregate.
Why 6.0/10? This optics gap sustains volatility—bulls can still win if arabica under-delivers.

Updated Catalyst Scorecard

Rank

Catalyst

Score

1

Brazil 2025 flowering → 2026 crop

9.5

2

U.S. 50% tariff on Brazil

9.0

3

EU EUDR (Dec 30, 2025 start)

8.8

4

Low ICE certified stocks

8.5

5

ENSO/La Niña rainfall risk

8.0

6

Vietnam robusta recovery risk

7.8

7

Wider trade policy fragmentation

7.5

8

FX (BRL) & selling behavior

7.0

9

Demand elasticity/substitution

6.8

10

Logistics, diffs & certification frictions

6.5

11

Spec/CTA flows

6.5

12

“Record crop” optics vs arabica bottleneck

6.0

📊 Supply–Demand Snapshot — Why Arabica Is the Pinch Point

  • World 2025/26: Production ~178.7 M; consumption ~169.4 M; ending stocks ~22.8 M (still lean).
  • Brazil arabica: ~40.9 M (down ~2.8 M YoY); robusta records elsewhere (Brazil/Indonesia); Vietnam recovery penciled near 31 M.
  • Private balance: Arabica deficit ~–8.5 M for 2025/26 (vs ~–5.5 M in 2024/25).
  • ICE plumbing: Certified arabica ~0.67–0.78 M bags and trending lower → thin deliverables, higher tail-risk premia.

🔍 Recent Headlines You Should Know

  • KC spiked toward/above $4/lb in early 2025 on panic buying, weather, and policy shocks.
  • “Record global crop” headlines coexist with lower Brazil arabica and tight ending stocks.
  • U.S. 50% Brazil tariff (Aug 6, 2025) credited with a ~30% surge in August.
  • EUDR deferred to Dec 30, 2025 for large/medium operators; compliance scramble into 1H26.
  • Early-Sep 2025 Minas dryness kept flowering risk live; markets watching late-Sep showers.

🎯 Street & Agency Views (as of Sep 2025)

  • Early-2025 consensus had end-2025 ~$2.95/lb, expecting mean reversion. The market disagreed post-tariffs.
  • One multilateral outlook saw >50% y/y up in 2025, then –15% in 2026, assuming supply normalization and Colombia recovery.
  • Several trade houses continue to highlight a widening arabica deficit into 2025/26.
    Takeaway: Consensus expects some 2026 cooling, but policy + compliance + arabica weather can overwhelm “aggregate surplus” narratives.

🧭 Pathways to 1,000 ¢/lb in 2026 (Aggressive Target)

We’re already near 400 ¢. To reach $10/lb, the market needs a stack of arabica-specific shocks that persist into 2026:

  1. Brazil under-delivers in 2026: Patchy/failed flowering (Sep–Oct ’25) and/or heat during fruit set reduce yields; 2026 arabica ≤ ~38–40 M.
  2. Tariffs persist through 2026: U.S. 50% duty remains in force, lifting U.S. basis and rerouting flows; fewer tenderable lots into ICE.
  3. EUDR friction bites in 1H26: Non-compliant lots stranded; compliant premiums surge; differentials widen and pull KC higher.
  4. Certified stocks < ~500k bags: Roaster drawdown + limited grading/tendering triggers backwardation and squeeze mechanics.
  5. Vietnam misses rebound: Water stress or tree fatigue keeps robusta tight; arabica must carry blends globally.
  6. Pro-cyclical flows: Thin deliverables + headlines = momentum/CTA accelerants through round numbers (500 → 700 → 900 → 1,000).

Probability assessment: Not the base case, but plausible if two or more of (1–4) coincide while financial flows amplify. Call it ~20–25% conditional on Q4’25 weather and policy staying restrictive.

🧮 Scenario Framework (NY Arabica, nearby; end-2026)

  • Bull (30%) — Squeeze: Brazil 2026 < 40 M; tariff persists; EUDR tight; certifieds < 0.5 M; Vietnam under-shoots.
    Price: 800–1,000 ¢/lb (blow-off spikes possible above 1,000 on transient squeezes).
  • Base (50%) — Elevated & volatile: Brazil 2026 ~41–44 M; tariff partially eased or offset; EUDR frictions fade by 2H26; Vietnam rebounds.
    Price: 450–650 ¢/lb with episodic spikes on weather or logistics.
  • Bear (20%) — Normalization: Strong Brazil flowering → 2026 ≥ 45 M; tariff rolled back; EUDR compliance smoother; certifieds rebuild > 1.2 M; demand softens.
    Price: 280–420 ¢/lb (vol still above pre-2024 norms).

🗓️ Watchlist & Timeline (what to track)

  • Sep–Oct 2025: Brazil flowering windows (Minas/Cerrado/N. São Paulo). Look for rain onset, follow-up, and heat bursts.
  • Nov–Dec 2025: Fruit set confirmation; disease incidence; updated 2026 potential.
  • Dec 30, 2025: EUDR go-live (large/medium operators).
  • Q1–Q2 2026: Compliance bottlenecks, EU diffs, tenderable quality flows into ICE.
  • All 2025/26: Tariff status, BRL swings, certified stock trajectory, Vietnam water/harvest updates.

⚠️ Risk Matrix (what flips the call bearish)

  • Timely rains in Sep–Oct 2025 and mild temps → robust fruit set; Brazil 2026 ≥ 45 M.
  • Tariff rollback or broad exemptions reduce U.S. basis support.
  • Vietnam outperform (> 31 M) relieves spreads; Indonesia robusta stays strong.
  • Certified stocks rebuild > 1.2 M bags by mid-2026.
  • Demand destruction accelerates (retail fatigue, substitution), capping upside.

📌 Positioning Lens (informational, not advice)

  • Drivers of upside convexity: Brazil weather into October, policy stickiness (tariff/EUDR), and certified stock path.
  • Tell-tales of a squeeze: Steepening backwardation, diffs blowing out for compliant washeds, and rapid certified draw alongside rising exchange open interest.
  • Tell-tales of normalization: Strong flowering reports, improved grading pass-rates, certified rebuilds, and easing EU compliance premia.

Bottom Line

  • The base case remains elevated and volatile into 2026, not automatic mean reversion.
  • A credible path to 1,000 ¢/lb exists if Brazil’s 2026 arabica disappoints, policy frictions persist, EUDR pins EU-grade supply, and certifieds fall sub-0.5 M, with CTA flows doing the rest.
  • Conversely, timely Brazil rains, tariff relief, and a clean EUDR transition cap the rally and pull prices toward the high-$3s/low-$4s.

 



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  ☕ Coffee (Arabica, ICE “KC”) — Outlook to 2026 Where we are (Sep 15, 2025): Nearby Arabica trades ~405–410 US¢/lb after a parabolic 20...