The Commodity Market (coffee commodity market), also known as the C Market, is where the global price of coffee is determined each day by traders on the New York Stock Exchange.
Unless you’re an enormous coffee enthusiast or follow commodity markets, you probably never even knew that coffee is a highly traded commodity with a global export value—up to more than 20 billion USD.
Quality standards for green coffee
The quality standards for coffee are pretty simple: the beans need to be from the Arabica variety, they have to be green (unroasted), they have to come from coffee farms in one of the twenty coffee-producing countries are predefined, and the coffee exchange needs to take place in one of eight licensed warehouses globally.
If a pound of coffee meets these quality standards, it can be traded on the C Market, and its value is considered the same as all other pounds of coffee that have also met the criteria. The quality of the Market C.
How is coffee traded on the Commodity market?
The price of coffee in Market C does not fluctuate randomly – it changes based on supply and demand and traders’ predictions about future supply and demand. All actors in Market C are trying to buy coffee cheaply or sell coffee at a high price.
However, the actual nuances of the C-Market are not relatively so straightforward. A lot of activity on the C Market revolves around futures contracts. A futures contract is an agreement between a buyer and a seller on Market C (or any commodity market). In a Market C futures contract, the buyer agrees to buy a specific amount of coffee (usually 37,500 pounds) at a particular price at a particular time, specified on the contract’s expiration date in the future. Sometimes, this expiration date does not occur until several years after signing the contract.
The specific price of the futures contract is determined based on the market price of the commodity at the time the contract is exercised, which means that buyers often seek to exercise the futures contract when the cost of the commodity coffee is low, ensuring guarantee that they won’t be forced to pay a lot more for their coffee if the price suddenly spikes.