Few things seem simpler to the average consumer than a cup of coffee; just add water (and/or milk, sugar). For those of us on the other side of the equation, however, the sentiment tends to be the opposite: There are few things that seem less simple than #coffee. From growing to roasting, grinding and beyond, every aspect of the industry can involve an endless combination of factors and variables to consider.
But it's safe to say that most people generally understand the "macro" steps of coffee (where a farmer grows coffee and then needs to be roasted before it's brewed with your chosen method) the technical details (e.g. processing methods, roasting curves and extraction yields of course), the role of the C Market and the green When it comes to how coffee is purchased, it's not as easy as going to the supermarket and buying a bag of tomatoes. Unless you're a seasoned coffee trader, understanding C Market can be a whole different game.
What is C Market?
C Market is the global exchange where the world's Arabica coffee is bought and sold every day. If you think this sounds like a financial market or stock market, you are absolutely right! Like sugar, wheat, cotton, oil, or gold, coffee is considered a commodity, and it is the back and forth flow of selling and buying that informs the constantly fluctuating coffee price, or “C” price.
Fun fact: The "C" at C Market actually means "center", not "coffee" or "commodity" as some might think. The modern C Market as we know it today was founded in 1968-1969 by producers in Central America who wanted to differentiate their prices mostly from Brazilian beans. Prior to C Market, Arabica coffee was traded under the Universal or “U” contract. Today, coffee producing countries around the world sell Arabica beans not just from Central America, but at C Market.
Coffee is a commodity, but what exactly does that mean? In global trade, a commodity is generally considered a raw material or input used in the manufacture of other products. Commodities can also be exchanged for other commodities of the same type, for example a barrel of crude oil produced in Texas has the same application as a barrel of oil extracted in Saudi Arabia. Quality is essentially considered uniform across goods of the same type.
When it comes to coffee, the coffees allowed to be traded in the C Market must meet certain quality standards: the coffee must be Arabica, unroasted, produced in one of twenty pre-determined countries, exchanged and traded in one of eight warehouses worldwide. There is a separate market for Robusta.
It is important to note that one of the main functions of the C Market (or any commodity market) is to standardize the coffee trade and set the trading rules.
Why Does the C Market Exist?
So why need a complex financial market for something like buying and selling coffee (or sugar or wheat or any commodity) in the first place? Why are commodities bought and sold like stocks and bonds?
Commodity markets actually date back hundreds, if not thousands of years, from the emergence of the stock market and are closely linked to the rise and fall of all civilizations that depended on the efficient trade of goods. While we're not diving into this long history, the commodities markets as we know them today were born out of two key developments in commodities trading: the spot market and the futures market.
The spot market is where the actual physical sale of a commodity takes place, and it is called the spot market because transactions are settled "on the spot". This is what comes to mind when we think of a traditional marketplace where sellers sell their goods and buyers pay cash.
However, there are two inherent problems with the spot market: liquidity and price discovery. In the spot market, the flow of goods can often be inefficient and unstable; a seller does not always have a guaranteed buyer, and market conditions can be uncertain. Also, until the seller actually brings their goods to market, they have no idea what the going price is for the goods they are selling and can only set a price based on what everyone else is selling.
On top of that, it takes several months for a farmer to plant his produce before it is put on the market. During this time, a number of events can occur that can greatly affect the price: a momentary cold can reduce harvests and increase prices, or an unexpected buffer crop can increase supply significantly and lower prices. Of course, this uncertainty also affects buyers.
To solve this problem, manufacturers and buyers began to enter into “futures contracts”. Both parties would agree to exchange the commodities at a later date—in the future—but the terms of the exchange would be agreed that day first. This practice removed uncertainty, and over time, futures contracts became the main way for buyers and sellers to negotiate.
However, there was a new problem: One party often quits because it goes bankrupt.
take into account the circumstances. A buyer who can no longer purchase goods from a producer will be putting that producer at the mercy of the high and dry and spot market.
Today's C Market
In coffee, this is what we now know as the #C#Market, operated by the Intercontinental Exchange (ICE), where coffee futures are traded.
The exchange acts as a central, third-party “counter party” for the buying and selling parties, and its main advantage is that the exchange cannot (under normal circumstances) disable it. Instead of buying and selling directly, the seller sells on the exchange and the buyer buys on the exchange.
The exchange also addresses the liquidity issue. By working through the exchange, sellers are essentially guaranteed a buyer for their products and vice versa. In a liquid market, high volume transactions can occur quickly and easily, and participants can open or close their positions efficiently.
Exchange-traded futures contracts allow both parties to exit contracts when and if they need to. For example, consider a buyer buying green coffee from a farmer. If at some point the buyer wants to exit the contract, he can sell it to the exchange where it will be bought by another person. They just need to make sure that they sell the contract before it expires, because at the time of expiration the person holding the contract will receive the physical delivery of the contractual good.
This means that in every commodity market there are many participants—also known as investors or “speculators”—who are never actually involved in the physical trade of goods, buying and selling contracts, just as someone is buying and selling. Stocks. The activities of these non-industry market participants can have a large impact on the price of coffee, but their activities are crucial to maintaining market liquidity. In fact, learning to navigate it is an essential part of farmer risk management and hedging contracts.
One last but very important thing about Market C and price C: When it comes to specialty coffee, price C is not the final price a farmer pays for his coffee, but only a fraction of that price. . The truth is, price C applies to all Arabica coffees regardless of quality or cup rating, as all coffees are considered a commodity.
What is very important to understand, however, is that price C acts only as a reference, the “comparison” price for coffee, and for specialty coffee, differences based on country, quality and certifications build on this price and play a large role in compensating. final amount paid to farmers. If some of these are a little hard to grasp, here are the main takeaways when it comes to understanding the "what" and "why" of C Market:
C Market is a global commodity exchange similar to the stock market, where both the physical trading of green Arabica coffee and the trading of coffee futures contracts take place.
Not all coffees are traded at C Market. In order for coffee to be traded, it must meet certain standards.
Like an exchange, Market C standardizes exchanges and sets rules about who can trade and how trades take place. In addition to those involved in the actual manufacture of green coffee products, there are market participants who are exclusively engaged in trading contracts.
C Market provides a global benchmark price for coffee. While other factors also affect the final price buyers pay for coffee, having a price reference is essential. Without the C price as a benchmark, it would be very difficult to determine the price of coffee on a global scale.
C Market acts as a central counterparty; Market-by-market contracts help ensure market liquidity and coffee flow.
take into account the circumstances. A buyer who can no longer purchase goods from a producer will be putting that producer at the mercy of the high and dry and spot market.
Today's C Market
In coffee, this is what we now know as the #C#Market, operated by the Intercontinental Exchange (ICE), where coffee futures are traded.
The exchange acts as a central, third-party “counter party” for the buying and selling parties, and its main advantage is that the exchange cannot (under normal circumstances) disable it. Instead of buying and selling directly, the sellers sells on the exchange and the buyer buys on the exchange.
The exchange also addresses the liquidity issue. By working through the exchange, sellers are essentially guaranteed a buyer for their products and vice versa. In a liquid market, high volume transactions can occur quickly and easily, and participants can open or close their positions efficiently.
Exchange-traded futures contracts allow both parties to exit contracts when and if they need to. For example, consider a buyer buying green coffee from a farmer. If at some point the buyer wants to exit the contract, he can sell it to the exchange where it will be bought