Written by Philip von der Goltz
The past weeks and months have felt heavy. Global news continue to revolve around wars - in Ukraine, Gaza, Iran, and Sudan - and around the devastating consequences for the people affected and, ultimately, for the global economy itself. The fighting may pause from time to time; the conflicts themselves unfortunately do not.
And that is precisely why I want to shift the focus today. Away from hectic headlines and permanent "Breaking News" updates. Let's pause to ask a bigger question, a coffee-crucial question:
What actually makes up the price of coffee?
That question isn't quite as easy to answer as you think. The answer lives in nothing less than human behavior and the mental frameworks we all share. The human instinct for safety and orientation repeatedly lures us into the same trap: the constant search for more information. Another headline. Another report. Another market commentary. That's what we think we need.
That is deeply human. Evolution trained our brains to detect uncertainty early and to reassess risks continuously. Whoever noticed sooner that there might, after all, be a saber-toothed tiger behind the next hill simply had better odds of survival. But, in today's hyper world, full of breaking news and social media blinks, more information doesn't automatically create more clarity.
Charlie Munger once said:
"The big trick is not to be particularly smart — but to consistently avoid being stupid."
Coffee trading contains a surprising amount of truth in that statement. So where does our analysis begin?
Anyone looking at Arabica and Robusta futures prices should abandon the idea of a perfect mathematical equation. Coffee is not a sterile laboratory experiment. Coffee is biology, geopolitics, psychology, logistics, weather, currencies, and human behavior - all at the same time.
What we can do, however, is break the price structure down into its individual components.The most important factors include:
• physical availability,
• futures market structure,
• differentials,
• currencies,
• weather and climate effects,
• managed money and speculative activity,
• freight and logistics,
• geopolitical risks,
• consumer demand,
• and global stock coverage.
Only the interaction of these factors ultimately determines the price of coffee. Let's look at the entirety of the coffee market in a more systematic way. Let us begin with physical availability.
Over the past months, reports from major banks, international brokerage houses, and local export agencies have increasingly pointed - almost unanimously - toward a large Brazilian crop. At the same time, other producing countries such as Vietnam, Ethiopia, and Uganda have already harvested strong crops as well.
The economic logic behind this is straightforward: high prices create incentives. Producers invest more, intensify farm management, and plant additional acreage.
Our current estimate for global coffee production:

The comparison with demand becomes particularly interesting. At roughly 175 million bags, global consumption currently remains almost 10 million bags below estimated production. Purely from a mathematical perspective, inventories should therefore begin to rebuild somewhat during the final months of the year. The futures markets in New York and London increasingly reflect this expectation as well.
1-Year Chart Arabica

1-Year Chart Robusta
Since the highs reached in October last year, both markets have corrected by more than 20%. From a historical perspective, however, both Arabica and Robusta still trade at exceptionally elevated levels — in some cases still nearly 100% above their long-term averages.
At the same time, the futures structure remains heavily inverted. That inversion prevents importers from building large inventories in consuming countries. Anyone financing coffee at expensive levels dislikes storing "too much hope" in a warehouse.
Differentials: getting firmer with falling futures markets
The development of differentials remains particularly interesting at the moment.
Brazilian farmers currently face little selling pressure. As a result, the physical market still feels surprisingly tight in many areas. Demand for nearby Brazil alternatives has strengthened globally — and differentials reflect exactly that situation.
In other words: the futures market looks bearish. The physical market still appears remarkably resilient in many places.
That, too, forms part of the reality of the coffee market.
And what about the funds?
After funds and speculators liquidated part of their long positions and took profits during the first quarter, they now operate far more cautiously. Positioning remains net long, but with a significantly more defensive risk appetite.
Market participants there currently focus closely on two issues:
• the actual size of the Brazilian crop,
• and the geopolitical situation in the Middle East.
Both factors could quickly shift market sentiment again.
Weather remains the major uncertainty factor
Global weather conditions remain critically important.
Phenomena such as El Niño and La Niña heavily influence rainfall patterns and can significantly affect flowering, cherry development, and yields. This year, indications of a possible El Niño scenario continue to increase, and early models already discuss potential implications for Brazil and Colombia. No serious analyst can reliably predict today how severe these effects may ultimately become.
And that is precisely the point:
The future rarely becomes fully predictable — but market participants can still analyze risks in a structured way.
Logistics: the underestimated price driver
Freight markets and global logistics currently face enormous stress.
Geopolitical tensions in the Middle East continue to push freight rates higher and slow coffee shipments considerably — particularly from East Africa. Inland container shortages persist, shipping lines constantly alter voyage schedules, and supply chains become increasingly unpredictable.
On top of that comes the uncertainty surrounding the Strait of Hormuz. Rising energy prices increase not only ocean freight costs, but also inland transportation expenses, fertilizer costs, and energy prices in producing countries.
Over the medium term, this creates a clearly inflationary environment.
And that is exactly where the next challenge begins: the consumer.
What happens to demand?
Consumers across North America, Europe, and many other parts of the world already face significant financial pressure. Energy, food, and financing costs continue to rise. Households reprioritize spending.
Fortunately for our industry: People continue to drink coffee.
Historically, however, consumption shifts within categories during such periods. Traditional branded programs often face more pressure and partially migrate toward discount channels, while premium segments tend to remain surprisingly stable.
Coffee is not merely a beverage. For many people, it represents a small piece of ritual, normality, and reliability in an increasingly unstable world.
Inventories remain "light"
The inverted futures structure continues to discourage most traders from building large inventories.
At the same time, high differentials recently transformed certified exchange stocks into an attractive and comparatively inexpensive coffee source for industrial roasters. As a result, exchange inventories continue to decline and remain historically tight.
So, what does all this mean in practical terms?
Now that we have conducted a somewhat more systematic assessment of the current market environment, we can begin deriving potential scenarios and assigning probabilities to them. That will be an exercise for one of the next blogs, but, for the moment, the following appears most important to me:
Despite still elevated price levels, the increasing availability of the Brazilian crop could place renewed pressure on coffee prices by the end of the third quarter at the latest.
Until then, it appears sensible to cover core qualities in a disciplined manner and in reasonable quantities. At the same time, volatility will likely remain high. A consistent hand-to-mouth strategy therefore still appears appropriate from today's perspective.
However, we should monitor two potential game changers very closely:
• the further development of the Iran conflict (Street of Hormuz),
• and the actual intensity of a potential El Niño event.
Both factors could shift market sentiment relatively quickly. And perhaps that is the most important conclusion of all:
We should not confuse our evolutionary desire for ever more information with genuine orientation.
Successful market participants do not constantly attempt to predict the future perfectly. Instead, they regularly and systematically reassess their current position, analyze the individual price components objectively — and then act with discipline, structure, and risk awareness.


















































































































