A Note for the Serious Investor:
The material that follows is written for high-net-worth and accredited investors who are serious about understanding the use of commodity options in a professionally managed portfolio. Futures and options involve substantial risk of loss, are not suitable for all investors, and only risk capital should be used. This article is for educational purposes only and is not a recommendation to buy, sell, or hold any specific futures contract, option, spread, or commodity position.
With the 2026 Brazilian harvest now underway, a likely record coffee crop will be flooding the world market in the coming months.
The market has been anticipating this supply influx for some time. Which is why the coffee market has been in a steady downtrend for nearly six months, falling from above $3.40 per pound in January to recent lows near $2.60, the lowest prices since late 2024.
You may think as an option seller that you should only be selling options in markets at extreme highs or lows, at levels above or below those highs or lows.
Nothing could be further from the truth.
If you’re considering branching out into the diversified commodities markets, especially as an option seller, you don’t want to avoid quietly trending markets. This type of price action typically indicates markets with steady, discernable, longer-term fundamentals. These types of fundamentals are unlikely to change dramatically over 3 to 6 months.
The Trend is your friend
– One of the oldest sayings in trading
Corrections are normal in any trending market. “The trend is your friend” is one of the oldest sayings in trading, but option sellers know the real question is not whether a market is trending. What we want to know is whether the spread is paying enough premium at strikes we do not believe the market will reach.
This month, I believe coffee may be offering just that type of setup we are looking for where trend, volatility, and premiums may line up in a way worth considering.
Of course, markets do not owe anyone rent. Futures and options involve the risk of loss, and there is no assurance that any trade or strategy will be profitable.
Brazil: Coffee King
Understanding coffee often means starting with Brazil.
Brazil is by far the world’s largest producer and exporter of coffee, in particular the higher quality Arabica coffee used to satisfy the majority of the ICE Coffee futures contract. Thus, developments in the Brazilian crop are key to forecasting coffee prices.
And for two years, the Brazilian crop was the problem. Drought and weather damage in 2024 and 2025 drove coffee prices to all-time record highs above $4.00 per pound. Roasters scrambled. Headlines screamed. The public, as usual, piled in near the top.
That era is ending. And it is ending the way bull markets in commodities almost always end: with supply.
World Coffee — Major Producers as % of World. Brazil remains the world’s largest producer and exporter of coffee beans.
The Harvest Seasonal
With the Brazilian harvest running through the summer and typically wrapping up by September, the market must brace for an onslaught of new supplies flooding the world markets. As supply is typically highest in the time immediately following harvest, coffee prices have historically tended to hit their lowest points of the year in the months following it. That means November, December, and even January.
The seasonal chart below illustrates this tendency.
That doesn’t mean it can’t rally. Flowering season for next year’s crop occurs in October, and poor weather during this window can occasionally bring buying into the market. Forecasters have also flagged elevated odds of an El Niño developing by mid-year, a pattern that can stir weather worries across the growing regions.
Much also depends on just how much supply is coming out of Brazil. Which brings us to perhaps the bigger point.
2026 Fundamentals: A Record Harvest
By most accounts, the 2026/27 Brazilian crop is expected to be an all-time record.
Brazil’s National Supply Company (Conab) pegs the harvest at 66.2 million bags, including 44.1 million bags of Arabica. Private forecasters are even more aggressive: StoneX, Sucafina, and Marex have all published estimates in the 75 million bag range, which would represent a roughly 15 to 20% increase over last year and the largest crop in history.
Favorable rains through the Brazilian summer did exactly what record prices could not: they fixed the supply problem. Heavy January rains across practically all coffee-growing regions favored bean filling during the decisive development phase. The trees, given two years of record prices and one year of good weather, responded.
The result: analysts now project a global surplus of roughly 10 million bags for 2026, with world coffee stocks expected to swell from around 38 million to over 48 million bags. Vietnam, the world’s robusta king, is producing strongly as well.
This much supply hitting the market should be a bearish force on prices for months to come.
One More Gift from the Bull Market
Here is the part option sellers should appreciate most.
Two years of record-high, headline-grabbing prices left a residue in this market: elevated call premiums. Option buyers burned into the top are still willing to pay up for upside lottery tickets. Volatility remains rich relative to the years before the bull run.
That means call strikes 50% or more above the market, at price levels this market has only visited during a once-in-a-generation supply crisis, are still commanding premiums worth selling. The bull market is gone. The premiums it left behind are not. Yet.
Conclusion and Strategy
The world’s biggest supplier of coffee is bringing in a record harvest as you read this. In our opinion, the excess supply will be a cement block on the ankle of prices in the months ahead.
Further hindering bulls is a powerful seasonal tendency for prices to fall further into year’s end.
All of this being the case, we advise patience in positioning in this market. Trends are excellent markets in which to sell options, often enabling you to collect premium for months off a few persistent fundamentals. And while we view coffee as such a market, it is oversold and due for a corrective rally.
October flowering, El Niño headlines, or a hailstorm story out of Minas Gerais could provide an excuse for one. Waiting for such a rally may enable you to sell higher strikes for larger premiums.
Our managed portfolios have been positioning on the call side of coffee in 2026, and we expect it to remain a core strategy through the remainder of the year.
Selling the March 2027 4.00 Coffee Calls
Self-directed traders can consider selling the March 2027 4.00 call on corrective rallies paired with a long call over the next month or two. Target premiums of $500+ per option spread. The 4.50 or even 5.00 strikes could become viable sales with a more substantial bounce.
March 2027 Coffee — Selling the March Coffee 4.00 Call Option, with strike line marked above the downtrend.
Consider what it would take to make these options a problem: coffee prices would have to climb roughly 50% from current levels, back toward all-time record territory, in the middle of the largest harvest in Brazilian history. It would likely take a severe and unforeseen weather event to push prices anywhere near $4.00 per pound. Risk of loss, of course, is always present in any trade, and risk parameters should continue to be minded.
Risk Disclosure: Trading futures and options on futures involves substantial risk of loss and is not suitable for all investors. Certain option-writing strategies, particularly uncovered positions, may involve substantial or potentially unlimited losses. Adverse market movements may also result in increased margin requirements and the need to deposit additional funds. OptionSpreaders.com primarily utilizes spread-based strategies intended to offset or limit certain risks, but spreads do not eliminate the possibility of substantial loss. Investors should carefully consider whether these strategies are appropriate in light of their financial condition, investment objectives and ability to bear risk. Past performance is not necessarily indicative of future results.
