The Growing Bullish Divide: Why Commercial Traders Outpace Speculators in Sugar and Coffee Markets

The global sugar and coffee markets are witnessing a striking divergence in positioning between commercial traders and speculators, as revealed by the latest Commitments of Traders (CoT) data. This divide, driven by fundamental supply constraints and strategic hedging, signals a critical shift in market dynamics that could reshape near-term price trajectories and investment opportunities.

A Structural Bullishness in Sugar

For Sugar No. 11 (ICE Futures U.S.), commercial traders hold an overwhelming 51.8% of total long positions and 44.2% of short positions, compared to non-commercial (speculative) traders' 23.6% longs and 29.6% shorts. This 28.2 percentage-point gap in long positions underscores a structural bullishness among producers, processors, and end-users. Commercial longs increased by 3,574 contracts in the week ending July 15, 2025, while non-commercial shorts retreated by 6,148 contracts, reflecting a tightening of speculative bearish bets.

The rationale for this positioning lies in the fundamentals. Brazil, the world's largest sugar producer, faces lingering production risks despite favorable weather in key regions. Meanwhile, global certified sugar stocks remain at multi-year lows, and demand from China and India continues to outpace supply. Commercial traders, acting as hedgers, are locking in prices to mitigate the risk of further supply shocks. In contrast, speculative funds—often driven by macroeconomic cycles—have adopted a cautious stance, with their net short position at -121,900 contracts, the largest since 2019.

Coffee's Bearish Commercial Overhang

The coffee market tells a different story. For Coffee C (ICE Futures U.S.), commercial traders hold a 62.7% short position—far exceeding the 41.5% long position—while non-commercial traders are net long at 32.5%. This stark bearishness among commercial participants reflects a strategic shift in hedging behavior. With Brazil's 2025/26 crop projected at 63 million bags (a 4% decline from 2024/25), and Vietnam's Central Highlands facing dry conditions, commercial actors are aggressively shorting futures to protect against oversupply risks.

Speculative funds, however, have reduced their bearish exposure. Non-commercial longs increased by 4,894 contracts, while shorts fell by 1,781 contracts, narrowing the speculative net long to 23,577 contracts as of late May 2025. This divergence suggests that while commercial traders are pricing in a structurally tighter market, speculators remain skeptical about near-term demand resilience.

Implications for Price Action and Investment Strategy

The CoT data reveals a critical asymmetry: commercial traders, who are closer to the physical markets, are more confident in the bullish thesis. This is particularly evident in sugar, where the forward curve has strengthened across the board, and the white premium (arbitrage between raw and refined sugar) widened to $116.9/tonne by July 19. For investors, this signals a market that is pricing in tighter supply conditions and growing demand expectations, especially as the season progresses.

In coffee, the commercial bearishness contrasts with speculative optimism, creating a volatile environment. While Brazil's production risks justify caution, the resilience of global demand—particularly in Europe and the U.S.—suggests that prices may find support. Investors should monitor Unica's May production report and Vietnam's export data for clues about supply-side surprises.

Strategic Recommendations

1. Align with Commercial Positioning: Given the structural strength in commercial longs in sugar and shorts in coffee, consider overweighting long positions in sugar futures and shorting coffee spreads.
2. Hedge Against Volatility: Use options or futures to hedge against sudden shifts in speculative sentiment, particularly in coffee, where macroeconomic factors (e.g., U.S. dollar trends) could trigger sharp price swings.
3. Monitor Key Catalysts: Track Brazil's weather patterns, India's export policies, and global demand data from China and Europe. These factors will determine whether the current bullish divide among commercial traders holds.

The growing bullish divide in sugar and coffee markets is not merely a technical anomaly—it is a reflection of deeper structural forces. Commercial traders, with their intimate knowledge of supply chains and demand dynamics, are signaling a market in transition. For investors, the lesson is clear: aligning with the wisdom of those closest to the physical markets may offer the most robust path to capitalizing on the next phase of price action.