As we close out 2025 and look ahead to the new year, coffee is shaping up to be one of the more quietly interesting markets on our radar. Prices have eased off the all-time highs posted earlier this year, working lower into the $3.75 area (as of November 13) as the market continues to digest a long list of fading bullish catalysts. Yet even as prices have moderated, something far more notable has remained in place: call premiums are still unusually inflated for a market that has already softened this much.
This is rare, and when it happens, option sellers should pay attention.
Coffee prices have slowed, not because of a single event, but because several changes have weakened the bullish outlook. The biggest factor has been the shift in discussions about the U.S.-Brazil tariff. Early in the fourth quarter, President Trump showed interest in removing or at least reducing the 50% tariff on Brazilian coffee imports set earlier in the year. Brazil’s President Lula called their meeting “surprisingly good,” and while there is no final decision yet, the talks are clearly moving in a new direction.
For months, traders bid up coffee futures and options on the assumption that U.S. buyers would remain constrained by higher import costs. Inventories tightened. Volatility surged. The entire market structure steepened. Now that the tariff appears more flexible, the story has begun to unwind.
Strangely, however, the premiums haven’t unwound with it.
Weather Premium Gone, Supply Premium Rising
Earlier in the fall, the market briefly fixated on dryness in Minas Gerais, Brazil’s most important arabica-producing region. That concern has mostly vanished. Seasonal rains returned right on schedule, with Somar Meteorologia reporting 72.1 mm during the week ending November 7, more than 160% above the long-term average. One thing coffee rarely lacks is weather drama, but this season’s dryness scare has fizzled as quickly as it appeared.
With weather no longer a pressing issue, fundamentals have moved back to center stage. And fundamentals, heading into 2026, are unmistakably heavy.
Conab’s estimate for the current Brazilian crop is around 55 million bags, while private estimates are drifting toward 60 million. The USDA is forecasting 65 million bags. StoneX released its first 2026/27 Brazilian production estimate, calling for an astounding 70.7 million bags, including 47.2 million arabica. Brazil is no stranger to big crops, but this projection would be a new record.
Vietnam shows a similar trend. As the world’s largest robusta producer, it reported export growth of 13.4% so far this year. Its 2025/26 crop is expected to rise at least 6%, reaching a four-year high. Boots-on-the-ground estimates indicate production could reach 31 million bags, the second-highest total on record. Either way, Vietnam production is going up.
When you combine recovering weather, expanding Brazilian output, and a robust Vietnamese pipeline, you get a market that can rally on fear but struggles to sustain against reality. And yet, in our opinion, premiums remain elevated compared to recent years.
Why Premiums Stay Inflated When Prices Don’t
This is one of the great misunderstandings among newer traders:
Option premiums don’t fall simply because prices fall.
They fall when the fear behind the premium fades.
Right now, the fear hasn’t fully faded.
The market appears to be pricing in the possibility that tariffs persist longer than currently anticipated, that adverse weather events (e.g., frost) could occur, or that geopolitical angst sparks a burst of speculative buying.
We assess many of these scenarios as lower-probability events based on our current analysis, although they cannot be ruled out.
But the market is still charging a premium for them.
This shows up most visibly in calls far above the market, with strikes that the fundamentals simply do not justify. It’s not unusual in November and December, when liquidity begins to thin and traders begin hedging year-end positions. What is unusual is how large the premiums have remained relative to the actual supply data.
For option sellers, such disconnects can present attractive risk/reward opportunities for investors with appropriate risk tolerance.
Seasonals Add Another Piece to the Puzzle
Coffee also enters a seasonally soft period as Brazil’s harvest concludes (September–October) and Vietnam’s peaks (November–December). Historically, this combination creates downward or sideways pressure into early Q1. While seasonal tendencies are never certainties, they offer helpful context, especially when they align with the market's fundamental direction, as they do now.
We have often pointed out that fundamentals and seasonals working together produce “fat tail” opportunities for call sellers, those rare windows when the market is paying handsomely for outcomes that are statistically unlikely. Late Q4 2025 is shaping up to be one of those windows.
Why We Like the Coffee Call Side Heading Into Q1
We have begun selectively positioning call opportunities in managed portfolios, focusing on strikes comfortably above the market where:
- Tariff-related upside risk appears overpriced.
- Supply creates a natural ceiling.
- Seasonal tendencies lean soft.
- Volatility remains elevated from earlier fears.
We are not calling for a coffee collapse.
Option selling is never about predicting a crash or a runaway bear market.
What we want to do as option sellers is recognize where prices likely won’t go and let the market pay you for assuming that risk.
Should headlines spark a brief rally or volatility spike, it would likely improve entry points rather than derail the broader setup. As always, credit spreads of any kind, even fully hedged ones, do not eliminate risk; losses are possible, and only risk capital should be used.
But as we enter December, coffee is one of the clearer examples of a market where earlier fears have kept premiums inflated long after the fundamentals began shifting in the opposite direction. Those are the environments we look for, and they don’t come around every month.
Final Thoughts: A Market Paying for Yesterday’s Fears
Coffee bulls have had to contend with a long list of developments this fall—better rainfall, bigger crops, a friendlier tariff backdrop, and record Vietnamese supply. Option sellers have the advantage of not needing to determine where coffee will go, only where coffee is unlikely to go.
As we turn the page toward 2026, that “unlikely” zone remains comfortably above today’s levels. And the market, for now, is still paying handsomely for the remote chance that yesterday’s fears return.
For sellers, that is the kind of setup worth savoring.
Justin Cardwell is Director of Research at OptionSpreaders.com.
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