Surfing the C. How Coffee Prices Are Shaped

C Market Explained and Unpacking Coffee Volatility: The Impact of Market Forces on Your Morning Cup

Lately, we've had several people asking why coffee prices are going up and how the C market plays a role in this. The C market is a global exchange that determines the price of Arabica coffee beans, based on futures contracts (agreements to buy or sell a specific amount of coffee at a predetermined price on a set future date). These prices fluctuate daily due to factors like supply and demand, weather, geopolitical events (such as the EUDR), and even the activities of traders. For coffee professionals, especially those in the specialty coffee sector, understanding how the C market operates is crucial because it directly impacts how coffee is bought and priced worldwide.

How the C Market Works

The C market operates primarily on the New York Intercontinental Exchange (ICE), where futures contracts are traded. These contracts allow buyers and sellers to lock in a specific price for a set amount of coffee that will be delivered on a future date. This system is used to manage risk—farmers and exporters may sell futures contracts to guarantee a stable price, while buyers, such as coffee roasters, purchase contracts to secure their supply at today’s prices, even if market prices rise later.

However, speculative traders also participate in the C market. These traders buy and sell futures contracts not because they need coffee but to profit from price movements. While they add liquidity to the market, their trades can often increase price volatility because they aren’t connected to the actual supply and demand of coffee. When large numbers of contracts are bought or sold based on speculation, it can cause sharp price swings, even if the actual production or consumption of coffee hasn’t changed.

Recent C Market Trends

Over the past two years, the C market has been highly volatile. Coffee prices have ranged from $1.40 to $2.50 per pound, and in 2024, prices even spiked to $2.75 per pound. Much of this fluctuation has been driven by unpredictable weather, particularly in major coffee-producing countries like Brazil (which produces around a third of the world's coffee) where severe frosts and droughts damaged crops. When weather reduces supply, prices rise, and when production recovers, prices fall. This volatility can make it hard for both producers and buyers to plan ahead.

Traders and Their Role in Coffee Prices

An important but sometimes overlooked factor in the C market is the role of speculative traders. These traders don’t necessarily care about coffee as a product—they’re in it for the potential profits, much like stock market investors. Traders buy and sell coffee futures contracts as a way to speculate on price movements, hoping to profit from fluctuations in the market. They might have no direct connection to coffee production, farming, or roasting but can significantly influence prices through large trades.

For instance, if traders believe a poor harvest will drive prices up, they may buy futures contracts, pushing prices higher. Conversely, if they expect a bumper crop, they might sell contracts, causing prices to drop. These actions can exacerbate the natural price swings caused by actual supply and demand, adding an additional layer of complexity to the market.

While traders bring liquidity and help set prices through speculation, their decisions are often disconnected from the realities of coffee production. This speculative trading can make the market more volatile, affecting both commodity and specialty coffee markets, even though the latter focuses more on quality and direct relationships between farmers and roasters.

How the C Market Affects Specialty Coffee

The C market provides a global benchmark, but it doesn't account for the quality of specialty coffee or the higher costs associated with its production. Specialty coffee producers invest in careful harvesting, processing, and sustainable practices, yet they are still tied to the same fluctuating C market prices as commodity coffee. This often creates challenges for farmers and roasters in the specialty market.

Price Volatility

Specialty coffee producers are subject to the same market fluctuations that influence commodity coffee, meaning their income can still be unpredictable despite producing higher-quality beans. This is especially tough when C market prices drop, making it difficult for farmers to cover production costs, particularly when speculative trading causes abrupt price movements.

Inconsistent Compensation

The C market doesn’t account for the additional costs of producing high-quality specialty coffee. Farmers who use sustainable practices, select only the best beans, and carefully manage their farms still face the same market pressures as those producing lower-grade beans. This disconnect can lead to financial strain, especially when farmers lack the leverage to negotiate higher prices for their quality coffee.

Specialty Coffee Buyers Seek Stability

To counteract these challenges, many specialty coffee roasters avoid the C market by establishing Direct Trade relationships with farmers. Direct Trade allows buyers to offer premiums well above the C market price, ensuring farmers are compensated for their quality and sustainability practices. For example, while the C market might fluctuate between $1.50 and $2.00 per pound, Direct Trade agreements often would range from $3.00 to $5.00 per pound or more, negotiated in human-discussions, based on the cup or true costs, reflecting the superior quality and ethical sourcing.

Risk for Small Producers

Small, independent coffee farmers, particularly those producing specialty coffee, are especially vulnerable when the C market price drops. Without strong connections to buyers who will pay a premium for high-quality beans, they may be forced to sell at commodity prices that don’t even cover their costs. This can lead to financial instability and, in some cases, may even force farmers to abandon coffee production.

Why It Matters

For coffee professionals and enthusiasts alike, understanding the C market and how it affects prices is key to making informed decisions. While the C market is necessary for setting a global standard, it doesn’t capture the nuances of specialty coffee, where quality and sustainability are paramount. The speculative actions of traders can further increase volatility in prices, even for farmers and roasters focused on quality.

Specialty coffee thrives on relationships—particularly Direct Trade—that allow roasters to support farmers and ensure they are fairly compensated for their work. These relationships help create a more sustainable and ethical supply chain, benefiting both the farmer and the consumer by ensuring high-quality coffee and fair pay for those who produce it.

Hopefully this helps you C more clearly.

Reading: Cropster, your roaster’s favorite software, has joined forces with Verdane, which now owns more than 50% of the company. This majority stake means Verdane will help lead Cropster’s global expansion, driving innovation and sustainability in the coffee industry.

Watching: We recently discussed Cole pausing the operation at Forward Coffee. You can now watch and listen on our YouTube channel as we dive into cash flow challenges, direct trade, and the role of transparency in the coffee business - it pairs well with the C-market commentary above and goes deeper into the in’s-and-out’s of how coffee is traded. Cole also shares key successes like the Forward Lottery, the emotional reactions to the closure, and hints at what’s next. Give us a sub too :)

Listening: In the How I Built This episode, Todd Carmichael and J.P. Iberti share how they co-founded La Colombe Coffee Roasters after meeting at a Seattle concert in the 1980s. Starting with the goal of making better coffee than what was available in the U.S., La Colombe now has 30 cafes across major cities and recently sold for $900 million (yes, thats right)

Brewing: This last week, we were in Guangzhou selling the drip (get it, buy the drip, sell the drip) and we had a couple of 12 hour days brewing at Kashi Festival. We brewed over 500 cups over the span of 3 days and we’re in Shanghai now getting ready to rock for another 5 day marathon show!

respond with a photo of your brew bar or get creative with an AI generated scene and we’ll feature and share in an upcoming week of BTD

Distance: Buy the Drip run club. Continuing to put one foot in front of the other.

“Small disciplines repeated with consistency every day lead to great achievements gained slowly over time.” – John C. Maxwell

Want to join us as we hit the road? Let’s connect on Strava! or, join our Whoop group - just respond to the email and let’s grind together!