Coffee futures fell sharply last week, with the most active May contract losing 14.45 cents from Monday to Monday to finish at 292.55 US cents per pound. The move came after prices briefly climbed to a high of $3.19/lb mid-week before reversing quickly, driven by heavy commercial selling from origin that overwhelmed an initial wave of speculative buying.
What drove the reversal
CFTC Commitments of Traders data showed speculative buyers were active in coffee during the week, in line with broader buying across agricultural commodity markets. However, heavy commercial selling, likely representing origin hedging, more than offset that demand.
The gross commercial short position, which typically represents origin hedging activity, stood at 100,673 lots as of last Tuesday. This is well below the historical average of around 119,000 lots, and also below coverage levels seen one year ago (125,000 lots) and in 2024 (148,000 lots).
The initial catalyst for the mid-week rally appears to have been geopolitically driven asset flows rather than a change in coffee-specific fundamentals, and the support that provided proved short-lived.
Brazil’s harvest approaches
With Brazil’s new season set to begin in late May, hedging pressure is expected to become an increasingly important factor for the market. Origin hedging typically coincides with the commercialisation of coffee in domestic markets as it is prepared for export, with price fixations occurring when farmers choose to sell. This activity tends to pick up during market rallies.
Brazil’s upcoming harvest is expected to be a bumper crop, which points to significant supply coming to market in the months ahead. The level of pre-harvest hedging already in place, combined with the scale of the anticipated crop, is likely to keep commercial selling pressure a recurring feature of any price rallies in the near term.
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