What’s Going On with the C Market and How Does It Affect Us

Everybody is talking about the C market right now in the coffee world. So, what is it? And why is it affecting everybody from the producers to the roasteries to the consumers?

To begin, we have to ask the question: What is coffee?

If you answered, ‘delicious’, you’re right! But coffee is also an agricultural product–like cacao, wheat, and avocados. It is, in fact, the second most traded commodity in the world, after oil. Because it is internationally grown and globally traded, a system had to be created in order to help buyers and sellers across the world agree on standardized pricing for these products.

Enter the C market.

In essence, the C market (‘C’ stands for ‘Centrals’) is the stock market equivalent for global agricultural commodities–like coffee! It sets the globally agreed upon price point of commodity-grade, standard, Arabica green coffee–the kind of coffee that you might find at your local supermarket (think Folgers or Maxwell House).

Unlike the stock market, however, where you purchase current shares in a company, the C market deals with coffee futures. What is purchased through here are contracts to buy or sell coffee at a predetermined price at a specified date in the future. But like the stock market, the C market can be pretty volatile based on a variety of factors that might affect the growing, harvesting, buying, or selling of coffee.

Plant disease (a more common one being coffee leaf rust) can impact a whole country’s supply of coffee as we saw in Guatemala in 2013 when it took out 70% of its crop. Adverse weather is always a threat, with frost or drought affecting supply. Russia’s war with Ukraine has affected the C market as the 6th biggest importer of coffee hasn’t been importing as much since it started. The list goes on.

So why are we writing this article now?

The coffee C Market has been making international headlines this past month. As a coffee roaster dedicated to putting on display the hard work of coffee producers, we feel it's important to share some of the insight we've received at origin about the ramifications of this major turning point in the history of coffee.

In 2023, the C market traded around $1.75-$2.25. Today, it’s trading between $3.75-$4.00. It’s basically doubled. And the reason for this has everything to do with Brazil. Due to several incredibly damaging bouts of frost and drought, Brazil’s crop for this year was affected and the harvest for next year looks to be even worse. This means there is now and will be in the future a serious supply shortage of coffee. Because Brazil accounts for over ⅓ of the global coffee market, this is a big deal. As buyers anticipate supply shortages to be at their worst in years, prices are being raised now as buyers run to reserve and lock in as much coffee as they can.

And this introduces other problems. Because, as the C market prices rise–those baseline prices–the possibility of buyers defaulting on their contracts also rises. If a coffee producer agrees to a contract at one price, but then, by the time the coffee is actually harvested, they can make twice as much money just by selling it to their local mill at C market price, that might be a real option for them. That kind of money makes a big difference in these coffee producing communities. However, while that might be a good idea in the short-term, defaulting on a contract would obviously have a negative impact on their long-term relationships with buyers.

That’s how the C market works. But if the C market deals primarily with standard, supermarket-grade Arabica coffee, why are we talking about it?

As a specialty roaster, we don’t purchase supermarket-grade Arabica coffee. We care far more about coffee quality than quantity. We don’t buy through the C market; we purchase directly from coffee producers. And to ensure that level of quality, we consistently pay well above C market prices.

But we care about what’s happening with the C market because it serves as a reference point for our direct-trade prices. The problem is, as the floor of the C market price is raised–doubled, really–the reference point for the prices we pay is also raised. So, the problem we’re facing is two-fold: First, we are having to spend more money now to reserve coffee since there will clearly be a shortage in the future. And since C market prices are so high right now, that means reserving coffee is far more expensive than normal. Secondly, as this volatility seems to be here for the foreseeable future, we are having to adjust as realistically as we can to a much higher price of procuring our coffee without raising our prices so high that we drive away our consumers.

That’s how the C market is affecting us here at Sagebrush and generally how it is affecting the specialty coffee industry stateside. But coffee producers are also not immune to these things. Their margins are narrow, their livelihoods are at stake, and the uncertainty of the future when it comes to the C market is causing some to react, even overreact, as they decide whether to sell all of their coffee at once now or wait.

Roasteries are feeling the effects of these things. Producers are feeling the effects of these things. And consumers will soon feel (in part) the effects of these things. The goal is that we would all just ride this wave together and wait for these tumultuous coffee waves to settle. That we would all make necessary adjustments without overreacting. And, most of all, that we would keep doing what we are passionate about: buying and selling delicious, quality, specialty coffee from hard-working farmers!

Written by Cameron Dodd