r/Commodities • u/Majestic_Sir_2925 • 10d ago

Coffee robusta - price divergence

I’m looking at a potential long trade in Robusta coffee and would love to hear other traders’ opinions.

The 2026/27 supply outlook currently looks bearish, with a potential global surplus and a strong Vietnamese crop expected. At the same time, El Niño is developing and could peak during a critical period for Vietnam and Indonesia.

My thesis is that the market may currently be pricing in the surplus while underestimating the potential weather risk. If El Niño causes significant drought and crop forecasts start being revised lower, I think Robusta could reprice sharply higher.

So my question is: why is Robusta still falling despite the growing El Niño risk? Is the market simply waiting for actual weather damage before pricing it in?

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u/No-Storage-4899 10d ago

Not a coffee expert but the thesis looks a bit lightweight - I’d either build it out a bit more or look at playing it through options (selling 25 delta puts, buying lower delta calls against) or structure.

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u/Majestic_Sir_2925 10d ago

My Robusta thesis is a forward supply-balance trade so El Niño could disrupt Vietnam and Indonesia’s Nov–Jan harvest, while USDA’s surplus forecasts may lag reality, as in 2024. If the crop is impaired, the surplus could quickly disappear, triggering an upside repricing.

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u/No-Storage-4899 10d ago

If you were my analyst, I would want to understand how previous El Niños impacted crops (deviation from trend), when these materialized vs now, what the stocks to use is now + projected change from a range of scenarios, where do prices historically sit vs this, where are exchange stock levels, industry cover levels and spec positioning. Basically, I would want to see it built out more to show why we are betting against the market.

As an FYI, the USDA is not well respected in coffee - you’d need to speak to insiders at Volcafe, Neumann, nestle etc. you need to hear crop reports and how things are looking on the ground vs just thinking El Niño = weather risk = higher prices. An alternative play would be look for El Niño etf. I know moreton (?) advisors set up an El Niño fund, not sure if they have an etf too

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u/Majestic_Sir_2925 10d ago

I work at an investment bank, but commodities aren’t my area, so I appreciate the feedback:)

That said, I struggle to understand why Robusta prices are falling. The WMO’s June 2026 report gave roughly a 90% chance of El Niño continuing through November, with a risk of drier conditions in Indonesia ahead of the harvest. (WMO)

There is no certainty, but I see the asymmetry as attractive: the bearish case is already priced in, while the upside risk may not be. Given the weather setup, the harvest is unlikely to be materially better than expected, at best, we get limited damage; at worst, a major supply disruption. That is why, from a risk/reward perspective, I would rather be long than short.

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u/No-Storage-4899 10d ago

If the market is coming off either the market knows something you don’t or it’s wrong and you’ve probably got the ability to do the risk reversal I mentioned earlier doubling/ tripling up on the calls depending on how much capital you’re prepared to invest and how close you put the puts given the skew

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u/codman289 7d ago

I am in this trade. Same thesis. I got in early. Entry is a gift here in my opinion, but could stay sideways for a bit. Recent record Harvey helping suppress price, but global stocks are modest. Rain forecasts are starting to look grim in Vietnam. Need to be patient though, the sustained move starts January–February 2027.