As we’ve shared in our newsletters, the coffee futures market is experiencing historic backwardation that is fundamentally disrupting pricing models and inventory management strategies.
Sadly, this isn’t new information — the market inversion has persisted for two years now. But it’s worth restating what an extraordinary departure this is from normal market conditions — and what it means for all of us.
Backwardation, Quickly Explained
Backwardation (the official term for an inverted market) means that coffee for delivery today costs more than coffee for delivery months from now — the opposite of normal market conditions.
Typically, future delivery costs more, accounting, in part, for storage, insurance, financing and uncertainty. The spread between contracts for December 2025 (Z25) and March 2026 (H26) has widened to 2,300 points — a 23-cent differential that ranks among the most severe inversions in decades.
Depleted Inventories Drive Market Tension
Exchange-certified inventories available for immediate delivery against futures contracts have experienced dramatic and sustained drawdowns, due in part to substantial Brazil tariffs. When certified stocks reach very low levels, it creates a shortage of deliverable supply for near-term contracts. In turn, the market must aggressively bid up nearby contracts to attract available supply.
Likewise, with a deep inversion and high market, the will for importers to carry inventory is dramatically reduced.
Compounding Supply Constraints
Beyond inventory depletion, several factors have converged to create one of the tightest markets in memory. These include extreme weather in Brazil and Vietnam, high interest rates and storage fees, and logistical obstacles.
More recently, tariffs have added cost and complexity to coffee flows, and political friction between the leaders of the United States and those in several producing origins has raised the possibility of increased tariffs — creating hesitation among producers and exporters and further restricting spot coffee availability.
Market Outlook
The backwardation environment has created significant challenges across the supply chain, from distortion of hedging models to disincentivizing inventory holding. Resolution will require either substantial inventory rebuilding or reduced tariff obstacles. Neither appears imminent, so adaptive strategies and a heightened attention to supply chain realities are essential.
We’re Here to Help
Addressing these market conditions requires proactive strategies and deep supply chain relationships. Our network access and decades of experience equip us to help you navigate this volatility — finding opportunity within the challenge. We’re here to help you proceed with confidence, or at least a thoughtful plan. Please don’t hesitate to start a conversation with your trader or to email the team at traders.iacus@nkg.coffee.
Ps: Check out our recommendation for alternatives to Brazil lots — and be sure to sign up for our newsletter to receive weekly Market Updates. •
