Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Coffee Futures Are Surging Past 350 Cents in July 2026
Transcript
- Lucas: Coffee is having a moment. Arabica futures on ICE — ticker symbol K-C — closed today at 347.30 cents a pound. That's an 11.6 percent gain just this week. Luna: Eleven percent in five days — that's not a normal move. What's lighting the fuse? Lucas: A few things lining up at once. First, certified stocks — the physical coffee sitting in ice licensed warehouses — have been falling for months. They hit a new low last week, and the market is bracing for another drawdown when the next report comes out Wednesday. Luna: Right, low certified stocks usually mean the market expects tight physical supply. But we've seen this before — in 2025, during the frost scare, and in 2024 when logistics bottlenecks squeezed the market. What's different this time? Lucas: Good question. The 2025 spike was all about weather — frost in Brazil in July. That was a supply shock. The 2024 rally was a logistics story — containers stuck in Santos, delays out of Vietnam. This time, it's more structural. You've got a weaker dollar, which makes dollar-denominated commodities cheaper for foreign buyers, and you've got fund positioning that's been building for weeks. Lucas: And then there's the weather angle again, but not frost — it's dryness. Brazil's arabica regions had below-average rainfall in May and June. The crop is already in the ground, but the concern is about next season's flowering. Luna: So the market is pricing in a potential problem that hasn't materialized yet. That's a weather premium. And on top of that, the dollar has been sliding — the DXY is down about 3% over the past month. That's a tailwind for all commodities. Lucas: Exactly. And look — a quick honest thing. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many episodes possible. No ads, no sponsors. Just listener support. So if walking through the economy with us has made something click, that's the link. Now back to coffee. Luna: Yeah, it makes a difference. So where are we on the curve? Lucas: The curve is in backwardation — that means front-month contracts are more expensive than deferred months. Right now the spread between July and September is about 4 cents. That's not extreme, but it signals that buyers are willing to pay a premium for immediate delivery. That usually happens when physical supply is tight. Luna: And that's different from the contango we saw in 2023, when warehouses were overflowing. Backwardation means the market wants the coffee now. Lucas: Exactly. Now, the big question: who's buying? We've seen speculative long positions increase in the CFTC commitments of traders report. Managed money is net long about 45,000 contracts — that's up from 30,000 a month ago. But commercial hedgers — the roasters and importers — are also adding longs, which suggests they see genuine physical demand, not just speculation. Luna: So both sides are bullish. That's rare. Usually when specs are long, commercials are short, hedging their physical inventory. But if commercials are also adding longs, they're worried they won't be able to source coffee at lower prices later. Lucas: Right. And that's the kind of alignment that can sustain a rally. But there are risks. Brazil's harvest is ongoing, and early reports suggest the crop is actually decent — about 60 million bags, maybe a bit more. If the weather cooperates and we get good flowering in September, that premium could evaporate quickly. Luna: So the market is essentially betting against a good next season. That's a high-stakes bet. What about the consumer side? Are we going to see higher prices at Starbucks? Lucas: Starbucks and Nestlé hedge their coffee purchases months in advance, so a spike like this doesn't hit the menu price overnight. But if futures stay above 300 cents for another quarter, you'll see it in the cost of goods sold. Starbucks already flagged higher commodity costs in their last earnings call. They said they were 85% hedged for 2026, but that hedge runs out eventually. Luna: So the consumer impact is a lagging indicator. But for traders, the action is now. What's the next catalyst? Lucas: Wednesday's ICE certified stock report is the immediate one. If stocks fall again, you could see another leg up. But also watch the Brazilian real — if it strengthens further, that makes dollar-denominated coffee cheaper for Brazilian exporters, which could encourage selling. And then there's the roasters' buying patterns — importers may start covering their needs for Q4, which would add demand. Luna: Let's zoom out for a second. Coffee is not the only soft commodity rallying. Sugar, cocoa, orange juice — they've all had big moves this year. Is this a soft commodity supercycle, or just a coincidental string of weather events? Lucas: I'd say it's more a macro story with weather triggers. The weak dollar is a tide that lifts all commodity boats. But each market has its own supply story. Cocoa is still recovering from the West African disease outbreak. Sugar is tied to ethanol policy in Brazil and India's export ban. Orange juice is a Florida hurricane story. Coffee's story is about stocks and weather premium. They're all different. Luna: But they're all happening at the same time, which makes it feel systemic. And that's why we're covering it. So for the coffee-specific trade: you think this rally has legs into Q3? Lucas: I think it depends on two things: the Brazilian flowering in September, and whether the dollar stays weak. If we get a normal flowering and the Fed surprises with a hawkish turn, coffee could fall just as fast as it rose. But if the weather premium sticks and the dollar continues to slide, 360 cents is not out of reach. That's about 3.5% from here. Luna: So a cautious bullish view — supported by fundamentals, but with clear risk factors. Lucas: Exactly. The market is pricing in a lot of good news for bulls. Any disappointment could trigger a sharp correction. But for now, the trend is your friend. Luna: Alright, we'll keep watching the certified stocks report on Wednesday. Thanks Lucas. Lucas: Thanks Luna. And to our listeners — if you found this helpful, consider supporting the show at buy me a coffee dot com slash fexingo. It keeps us independent and ad-free. See you next time.