Understanding the C market and its influence on the price of coffee

Kahwei Yoong
November 10, 2021
coffee c market

If you’ve ever purchased green arabica coffee beans, the price you paid will have been determined, at least in part, by what’s known as the “C market”.

Used to set a global benchmark for the price of coffee, the C market is a commodity exchange that helps both to standardise the trade of coffee and to establish the rules for trading.

Most of the activity in the C market revolves around futures contracts. These are agreements between buyers and sellers to exchange commodities at a later date (i.e. in the future) with the terms decided before, all of which are facilitated by a centralised third party known as the Intercontinental Exchange (ICE).

However, the price of coffee on the C market – like shares on the stock market – fluctuates based on changes to supply and demand, as well as on speculation. As a result, what could be $0.90 per pound of coffee one day, could soar to $1.70 per pound the next.

To find out more about the C market and its impact on coffee roasters, I spoke with the managing director of green bean importers Condesa Co.Lab.

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The C market is used to standardise the trade of coffee and to establish the rules for trading.

What is the coffee C market?

As with every other commodity, green arabica coffee is traded on an exchange market. In this case, it’s the Intercontinental Exchange (ICE) in New York City. 

Commodities listed on ICE are traded as futures contracts. A futures contract is a useful financial instrument that guarantees the delivery or receipt of a commodity at a predetermined price on a predetermined date.

Every future contract represents 37,500 lb (±17,000 kg) of exchange-grade coffee. The buying and selling of contracts ultimately establishes the global trading price of arabica coffee. This is what is known as the C price, and it serves as a benchmark for participants of the coffee supply chain.

Coffee supply and demand are volatile, thanks to a variety of factors that can affect harvests, including abnormal weather conditions and outbreaks of disease. As a result, the C market faces daily fluctuations in price, as it is perpetually correcting variations in supply and demand.

Stephen Bannister is the Managing Director of Condesa Co.Lab, a specialty green coffee importer based in Sydney, Australia. He tells me that the C market has been experiencing high volatility in recent months, and that the C price is anything but stable.

“If we take a five years runback, we see that the price was more or less quite stable. Over the last three months, that has not been the case,” he says. “We generally had good harvests of coffee over the last four years, but this year, we had the impact of Brazilian frost and a number of weather issues that went into driving prices [up].”

At the same time, he adds, it is also important to understand that the C price represents much more than the value of coffee today.

“While the C market is looking at price today, it is really about predicting and looking at supply and demand of future crops as much as what’s happening in the here and now,” he explains. “Sometimes, information that is relating to three, six, or twelve months down the line is also being factored into the price.”

The C price is affected by a range of factors, including speculation about the quality of harvests

Navigating the C market: Trends and implications

Brazil is a leading coffee producer, and its exports account for almost 40% of global coffee trade. The unprecedented drought and frost which hit the country this year have destroyed large amounts of coffee crops, causing a supply crunch that has affected the C price.

Brazilian authorities are predicting a decline of 25.7% compared to last year’s harvest. Research by the International Coffee Organisation (ICO) also shows that the Covid-19 pandemic has created logistics constraints, added to the industry’s woes. 

“The logistics challenge is not looking like it is going to get any easier than in 2022,” admits Stephen. “The prediction is that maybe we will see a better shipping logistic environment in 2023 (that mirrors 2018 or 2019), when businesses could operate in a more ‘just in time’ fashion. 

In the current environment, he says, lead times have been doubled. Furthermore, he foresees that there will be a fundamental shift in procurement behavior. Because coffee is trading at multi-year highs, people are preferring to buy monthly or quarterly, rather than buying for the long term.

Stephen explains: “This is going to add further stress to the logistics environment, because there is more pressure on importers or wholesalers to hold stock in anticipation of when people are going to buy.

This complicates things, as holding on to stock can cost importers and other supply chain stakeholders lots of money.

However, when looking at recent consumption trends, Stephen sees that demand for coffee is still on the rise. 

“Our prediction for consumption next year is a little bit higher,” he notes. “That is creating a supply and demand gap at the moment, and it is going to be interesting how we navigate that.”

Roasters should prepare for fluctuations in the C market

How to prepare for challenges imposed by the C market

Predicting market movement can be tough, but there are a few ways for roasters to manage their exposure to market volatility.

Firstly, Stephen advises coffee roasters to have a good understanding of their cost model and to practice a flexible budgeting model. 

“Knowing your cost base all the way down to the cup level, including cost and margin of the blend, enables you to budget going forward what is the upper level of the blend. As a roaster, you’re always needing to buy green coffee, so knowing and understanding your cost is important,” he says. 

It is also crucial for roasters to communicate expectations to producers or importers when procuring coffee, so that both parties can figure out the best way to move forward in these times of uncertainty. For instance, ask yourself whether you need the coffee to add acidity, body, or to lower the cost of a blend.

Another important thing to remember is that if coffee prices continue to increase, roasters may need to start passing on the additional costs to consumers. In this case, communication will be key to ensure that customers are not caught off guard.

It’s also advisable for roasters to be open to other coffee origins as substitutes should any supply issues arise. This will help to mitigate some of the market constraints.

Stephen adds: “It is also important to not look at the C market in isolation, but to look at it in conjunction with the other factors that are happening. It is not only the C market that is driving prices, but also what’s happening within a country that people should be more aware of.”

Therefore, he says, learning about individual events that are taking place at origin will give roasters the upper hand.

“The most important thing I can say now is to be ready to make decisions,” he continues. “If the market hits a certain level that works in your budget, make a decision in a day, because the market may not stay there.”

Ultimately, having a clear understanding of your business model and needs, coupled with the curiosity to continuously seek out new knowledge and information, can help guide roasters to make strategic decisions in these unprecedented times.

“Don’t beat yourself up,” says Stephen. “It’s really difficult to be trading or buying in volatile markets.”

At MTPak Coffee, we appreciate that the C market is the source of much uncertainty. That’s why we offer a simple, efficient service that showcases a range of sustainable packaging options for coffee roasters. 

Our coffee bags can be made from eco-friendly materials like kraft paper, rice paper, and PLA. All of these options can be fitted with additional features like our BPA-free degassing valve, ensuring that you keep your coffee fresh for longer.

For information on our environmentally friendly coffee bags, contact our team.

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