Why I Was Bullish Arabica Coffee

Executive Summary#

Investment View#

Positioning#

Market Background#

Coffee entered late 2025 after a powerful rally. Weather problems, tight inventories and trade-policy uncertainty had already driven Arabica to historically elevated levels.

That context created two competing interpretations. The bullish view saw the pullback as an entry into a structurally tight market. The bearish view saw a crowded, expensive commodity whose risk premium could fall quickly if rainfall or trade flows improved.

The original thesis underestimated how much scarcity was already priced.

Investment Thesis#

1. Visible Stocks Were Low#

The original presentation recorded ICE-certified stocks of 398,645 bags. Low exchange stocks reduce the buffer available against a crop or logistics disruption and can magnify futures squeezes.

However, certified stocks are not the same as total global inventories. Coffee can sit outside the exchange system, and high prices can encourage previously uncertified material to enter deliverable channels. Exchange stocks should therefore be treated as a market-structure indicator, not a complete supply measure.

2. Brazilian Weather Created Optionality#

Brazil is central to global Arabica supply. The original research highlighted a high probability of La Niña conditions and the possibility of drought stress during a sensitive period for the 2026/27 crop.

Weather risk was the strongest catalyst because it could change yield expectations quickly. It was also the weakest forecasting variable: rainfall models and crop assessments can reverse from week to week.

3. The Tariff Reversal Created an Apparent Entry#

The removal of US tariffs on Brazilian green coffee contributed to a sharp correction around 20 November. The thesis interpreted this as a one-off policy adjustment that improved entry without changing the underlying crop balance.

In retrospect, the policy move was more important. It eased a distortion in trade flows at a time when speculative positioning and high prices were vulnerable.

4. Demand Was Relatively Inelastic, Not Immune#

Coffee consumption is habitual, but roasters can alter blends, reduce promotions or substitute Robusta when Arabica becomes exceptionally expensive. The original work was too confident that demand would remain unchanged.

At high prices, elasticity can appear through the supply chain even if end consumers continue buying coffee.

Catalysts#

Principal Risks#

Outcome and Reflection#

INSEE’s nearby ICE Arabica series averaged 408.0 cents/lb in November 2025, 376.3 in December and 356.3 in January 2026. It fell further to 296.4 in February and remained near 300 through April.

The International Coffee Organization reported that its broader composite indicator averaged 248.90 cents/lb in June 2026 after reaching a nearly two-year low earlier in the month. Arabica exports in the twelve months to May were lower year on year, but that did not prevent a major price decline.

Research Methodology#

The original reference range, stock figure and target come from the 27 November 2025 Queen’s Tower Capital presentation. The price outcome is checked against INSEE’s published nearby ICE Arabica series and broader market conditions against the International Coffee Organization.

Sources#

• INSEE — Nearby ICE Arabica Futures Series
• International Coffee Organization — June 2026 Market Report
• International Coffee Organization — Coffee Market Reports
• FRED / IMF — Other Mild Arabica Price