It’s time for specialty coffee buyers to learn how the C market works

stock market classroom
  • A green coffee trading crisis means specialty coffee roasters are struggling to turn a profit or stay in business 
  • Many operate outside of the C market and are unfamiliar with it –  but its fluctuations can still have ripple effects on specialty coffee prices
  • Understanding the C market could offer specialty buyers a better vantage point of the broader system within which they operate, and help unlock strategies for more sustainable growth 

AMIDST AN economic crunch, specialty coffee buyers are finding it increasingly difficult to turn a profit – prompting a need for strategic pivots to ensure their survival and growth.

As they navigate a green coffee trading sector in crisis, heightened industry competition and growing consolidation, they are recognising the importance of better sector knowledge – including understanding how the C market operates.  

As companies struggle or smaller specialty operations get acquired, they are forced to make their business models and approach ever more profit-driven and cost-effective,  in what seems like a binary scenario of “keep up” or “get left behind.” 

It would be cynical to draw the conclusion that smaller, sustainability-driven enterprises should give up their principles in favour of making a profit or simply staying in business. However, a shift from niche operations and short term thinking to a macro view with a long term strategy could help businesses get through this crunch.

“The current climate is especially hard on smaller specialty companies with higher priced inventory,” says Katherine Nolte Ferguson, Head of Specialty at Sucafina. “Companies who are adapting to these ‘new normals’ are doing better than companies who are waiting for things to go back to ‘normal’. When life gives you lemons, make lemonade.”

The C market, also known as the ICE (Intercontinental Exchange), serves as a benchmark for global coffee prices and plays a significant role in shaping market dynamics. Mastering the ins and outs of this system can help to decipher industry dynamics at a more sophisticated level.  

“There’s always a need for education and furthering one’s understanding of the market,” says Judith Ganes, the president of J Ganes Consulting

“The new buyer who lacks formal training and knowledge needs to, and so do corporations who previously didn’t permit the use of options, and now recognise that they must reexamine their risk management policies.  Even if one isn’t hedging, being smarter about the market can help improve negotiating skills, and even timing of purchases and sales.”

No coffee is an island, it’s all interconnected      

While specialty arabica coffee can operate outside of the C market due to its differentiation from commodity coffee, fluctuations in the C market can still have ripple effects on specialty coffee prices.

The “C” in “C Market”, stands for “centrals” – not “coffee” or “commodity” as commonly thought. It operates as a futures exchange where contracts for the future delivery of coffee are bought and sold. 

Prices are determined based on supply and demand dynamics, as well as external factors like weather conditions, geopolitical events, and currency fluctuations. While the C market primarily deals with commodity-grade coffee, its pricing mechanisms can indirectly impact specialty coffee prices, particularly in times of market volatility.

For example, the 2023 Specialty Coffee Transaction Guide reveals different responses to the downturn in the New York C price for the most recent harvest year. The median price for a container of 83 point coffee fell from $2.74 to $2.20 per pound. This 54 cent decline roughly matched the 52 cent decline in the New York C price. However, the median price for a 1,000 pound lot of 87 point coffee rose 21 cents to $4.91 per green pound.

“Even if you are out there selling roasted coffee at US $70 for a 12oz bag, that price is only super-premium because of its relationship to the market price,” says Katherine.

Local market dynamics also determine whether or not prices are competitive for producers, and how certain coffees will sell.

“The futures contract is a benchmark for all coffee, although the contract delivery is for Washed Arabica,” says Judith. “But the world is a small place, and interconnected – if there is a shortfall of one origin, then it creates demand for another, for example.”

To stay ahead of the curve and mitigate risks, specialty coffee buyers can familiarise themselves with the intricacies of the C market. Understanding its operational mechanisms, and factors influencing price fluctuations can provide valuable insights into market trends and help buyers make informed decisions about their purchasing strategies.

“Specialty coffee buyers need to understand that while the coffee they purchase may be differentiated, the invisible hand of economics does come into play and demand for these coffees is not inelastic,” says Judith.  

“I think the industry has matured over the past 25 years and recognises that specialty coffee doesn’t trade in a vacuum, and isn’t completely disconnected from more commercial grades of coffee.”

commodity trading screen

Is the return on investment worth the effort? 

While specialty coffee is differentiated from commodity coffee based on factors like quality, origin, and flavour profile, it is still subject to broader market forces that can influence pricing and profitability.

Insights into how the C market operates, can possibly help better anticipate market trends, manage risks, and optimise purchasing strategies to navigate volatile market conditions. 

“It’s definitely worth the time and investment to have a better appreciation of the market, because it helps to understand relative value, how differentials play a key role in price relationships, and they are more aware of factors that can influence the supply and pricing of coffee they are purchasing,” says Judith. 

That said, no man is an island either. The solution doesn’t only lie in individual, theoretical learning – this is just one of many steps. 

Green coffee traders have a wealth of knowledge on how the price of coffee is connected to a globalised economic ecosystem. Armed with that knowledge, roasters can better translate and leverage it, if they have access to it.

Buyers communicating expectations to producers or importers when procuring coffee is vital, and conversely, so is traders offering value chain transparency. Understanding demand and mapping out costs and financial flows from seed to cup can help strategise and contextualise decision making.

“The challenge is that there’s not a lot of great information out there. The people with the best information often have little incentive or too little time to share it,” says Katherine.

Ultimately, there is no quick fix to pressures and challenges faced by specialty coffee buyers today. Understanding the C market and taking a step back could offer a more aerial view of the broader system within which they operate. 

For a segment that is often caught up in a silo, this fresh perspective could help unlock longer term strategies that focus on sustainable growth over quick wins.

Coffee Intelligence

Want to read more articles like this? Sign up for our newsletter here.