Coffee Corner - Understanding the Coffee Market
Why are you paying more? A forever changing 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”. What the “C Market" is based at is not what the cost is ‘Per Pound’, but your costing is tied to the market changes. In the last year the ‘C Market’ has increased 200+%.
The C market is a commodity exchange that helps both to standardize 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 coffee in the short future. Often with the terms decided before the coffee harvest.
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, the market can change 70% within one week. This is always dependent on Crop expectations and global demand. The C market is used to standardize the trade of coffee and to establish the rules for trading.
What is the coffee "C market?"
The C price is affected by a range of factors, including speculation, quality of harvests and farmers abilities to get their coffee to the market.
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 last year has destroyed large amounts of coffee crops, causing a supply crunch that has affected the C price.
Last year Brazilian authorities had a significant decline compared to the previous years, as Brazil being a leading producer if they foresee a bad forecast, the whole market reacts even if other regions/countries are showing a surplus.
Between 2016-March 2021 the market stayed consistent between 1.10-1.30. This for roasters and green bean buyers is a sustainable fluctuation of 25%. In the last few months, the market hit a $2.61 High, this indicates a 237 % Increase. Now averaging at a $2.30-$2.40 this is still showing a 213% increase.
However, this was just the beginning. Once the Brazil frost hit, the market surged from 1.25 to 1.7-1.8 in a matter of 3 days. This created fear in the many roasters due to the fact of the record change in the market.
Also at this time, coming out of COVID-19, investors saw an opportunity in the C-Market which led to it being artificially inflated to 2.20-2.30 - resulting in record highs. This was a result of a weakening USD and moving investments into a market which was showing large returns.
But the C-Market is just the beginning: every coffee direct from Origin is traded on the C-Market plus a differential. Differential is based on many things, quality of Coffee, shipping expenses (which have increased 500%.) and rarity of the coffee. Some regions may have a similar SCA Scoring, however have a much higher price due to demand of that specific coffee.
In the current environment, lead times have been doubled or tripled as many shipping companies are not honoring shipping contracts due to the market changing on shipping so significantly. Furthermore, I foresee that there will be a fundamental shift in procurement behavior. Because coffee is trading at multi-year highs, roasters are preferring to buy monthly or quarterly, rather than buying for the long term is giving roasters a problem in not being able to delay shipments but increasing the urgency of bookings arriving has led to surcharges above the 500% Increase. Roasters buy short term in a high market in the hopes of it coming down.
In March of 2020 to ship from our partners in Brazil/Colombia to our facility in Calgary was $4000-$5000 USD, today that has surpassed $20,000 from door to door. A significant impact on the differential above the already record high C-Market.
In conclusion, will this end?
As the owner of specialty coffee roaster, we cannot tell the future of fears of frosts, world civil unrest, a potential upcoming recession and shipping normalizing. But we do feel the market will come down 20-25%. However, the days of the market trading at 1.10-1.30 will never come back. With inflation concerns and market changes. What we expect for normalization will be seeing a market at $1.80-$2.00. With shipping coming down 40-50%. However, with these two combined factors this still results as an industry average from January 2021- to a market stabilizing at 1.80 still shows an increase of 60-70%.
Do I think this will normalize in the next six months? No. Could it in 1-2 years? Yes. However, this is totally dependent on three main factors.
- Oil Prices coming down 20-30%.
- Shipping times and a significant drop in shipping costs.
- Strong coffee harvest from Brazil, with no frosts. (This is a concern for the next month of frosts, if there was a frost, markets would rise potentially to $3.00.)
I hope this article shares an insight into a commodity that is enjoyed by so many, (the 2nd highest traded commodity after oil) yet so volatile to market changes.
Written by Karl Ward – Owner of Caffé Monte Coffee Roasters.
About Caffé Monte - Our roots stem back from humble beginnings in 2014. Every day our partners gather enthusiastically to create the perfect fresh cup throughout our locations across North America.
We are a family business of father and son duo. From the new café owner, corporate partner, our coffee farmers, we treat as our own family. We are committed, friendly, approachable, reliable, and informed. Relationships are important to Caffé Monte. Connections with our farmers to our cafes, Office Coffee Distributors are valued equally.
We understand the need for quality and consistency in our specialty coffee and together as a team we produce some of the finest coffee. We are committed to small batch roasting as well as sourcing the finest, ethical and specialty coffees.
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