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C-Market 101
Historically, the complexities of the C-market were often overlooked by specialty roasters, perceived as distant and unrelated to specialty coffee pricing. However, with C-market prices at record highs, that’s changing. Producers and farmers are now closely monitoring these prices, as current levels may offer them higher returns than traditional specialty markets. Consequently, prices on the “C” and in specialty sectors move in sync – if a cooperative can’t pay prices above what’s being paid in commodity, it gets hard for them to secure coffee.
This article is an explainer on what the C-market is, how it works, and how to understand the terms and jargon used in that market. It’s covering the basics, the C-market 101. The content is largely built on Algrano’s internal resources to train and educate our own team; by sharing it with you, we hope you get a better understanding as well. That being said, if you come out of this with more questions than answers and really want to go down the rabbit hole, do reach out to your contact.
Terms and jargon
First, let’s get some of the terms sorted out, so you’ll understand what we discuss later.
What is a futures contract?
What’s referred to as the “C-market” is essentially at what prices futures contracts are traded on the Intercontinental Exchange (ICE). Very generically, a futures contract is an agreement on a coffee price today for coffee that is delivered in the future. For instance, imagine you’re a roaster who needs a container of coffee to be shipped six months from now. You’re worried that prices might go up due to bad weather or supply chain issues. So, you make a deal with a supplier today to buy those beans at a fixed price, say $4 per pound, for delivery in six months. This way, no matter what happens to the market price, you know exactly how much you’ll pay. Think of it like locking in a price for your favorite green coffee before the harvest ever happens – just like pre-ordering a limited edition lot to secure your supply at a predictable cost.
In that regard, this reads a lot like any fixed price contract or forward buying, and it is. What is unique about these futures is that they are standardized and tradeable, meaning you can buy and sell these contracts to anyone else on any day through the exchange. That’s harder for smaller lots and specific coffees as they’re not standardized. As these contracts are continuously traded, the price reacts to changes in supply and demand – so you might have bought the futures contract at $4 a pound, but can sell it at $4.10 a week later.
In theory, you can do that with fixed price contracts for specific coffees as well, but it’s largely theory: The market does not exist, because these contracts are not for standard quantities and not for standard coffee – so you can sell it, yes, but it’s up to you to find and match with a buyer, and that is a lot of work. Whereas with standardized futures contracts, you can just tell the ICE you want to sell the future, and you’ll find a buyer within seconds.
Standardization in futures contracts, what does that mean exactly?
Futures contracts are standardized across several dimensions:
- Size: Each contract represents 37,500 pounds - approximately one container.
- Delivery Dates:
- For Arabica, there are five fixed delivery dates annually: March, May, July, September, and December (known as "expiration dates").
- Robusta contracts have expiration dates in January, March, May, July, September, and November.
- Quality: They are traded under "Exchange grade" quality, essentially easily substitutable commodity coffee.
- Delivery Locations: Fixed delivery locations are designated - New York for Arabica and London for Robusta.
So how is the C-market price established?
These standardized futures contracts, you can buy and sell them every day through the ICE exchange, as long as they haven’t expired (once they expire, you are obliged to deliver/pick up the coffee in New York or London). Depending on how many market participants want to buy or sell on any given day, the price moves up and down, second by second. If more want to buy than sell, the prices increase – if more want to sell than buy, the market decreases.
But remember: There is more than one futures contract – there are different delivery locations and different delivery months/expiration dates, and they all have different prices. As a convention, if someone tells you “the C-market is at X”, they refer to the price of the Arabica contract with the nearest expiration date (this may be abbreviated as “KC1!”, the “1” indicating the nearest expiration date). The proper way to quote prices would be something like “KCH2025 is at 395.75” for Arabica, or “RCH2025 is at 5633” for Robusta. Prices for Arabica are always quoted in cents per pound, whereas Robusta is quoted in USD per metric ton.
Sorry, you lost me here in all the acronyms. How do I read those?
References like "KCH2025" follow a straightforward logic:
- First Two Letters: "KC" denotes Arabica; "RC" denotes Robusta.
- Third Letter: Indicates the expiration month—"F" for January, "H" for March, "K" for May, "N" for July, "U" for September, "X" for November, and "Z" for December.
- Last Four Digits: Represent the year.
Thus, "KCH2025" refers to the Arabica coffee future expiring in March 2025.
Forward curve
Having all these different expiration dates actually tells you something about what the market expects where prices are going. If you take all these prices for different expiration dates and plot them on a graph, you get what is called a “Forward curve”. Historically, the market has been in “Contango”, meaning prices further in the future (i.e. with expiration dates further in the future) were higher than prices today. Currently, the market is in “Backwardation”, which is the opposite: Prices for futures contracts today are quoted higher than prices further in the future, mostly because everyone is rushing to secure coffee asap.
What is a “liquid” vs an “illiquid” market?
Liquidity refers to how many of these futures contracts change hands on any given day. High volumes means the market is liquid, and if you either want to buy or sell, it’s easy to find a seller/buyer for the other end of the transaction. In an illiquid market this is not the case, and you might not even get a price for it every day because no transaction happened at all. In an illiquid market, there is more uncertainty about the price and you sometimes have to explicitly ask for a quote. It also means you might see bigger jumps in prices from one trade to the next.
As a general rule, the further out the expiration date, the less liquid the market.
What does it mean to be “long” or “short”?
Long or short are always indications of someone’s position in the market. Simply put, being long means you've bought futures, while being short means you've sold them. But in coffee, these positions are often just one piece of a bigger puzzle.
For producers, importers, traders, or roasters, futures positions are typically tied to their physical coffee holdings. A producer, for example, is naturally "long" in physical coffee - they own coffee they plan to sell. To protect themselves against price drops, they might take a short position in the futures market, effectively neutralizing their exposure to price swings. A roaster, on the other hand, starts the season "short" in physical coffee - they need to buy it. To manage risk, they might go long in the futures market and later sell those contracts once they secure the coffee from a producer.
Importers and traders usually operate the other way around. Since they often buy coffee before they find a buyer, they tend to be short in the futures market, hedging against price risk. Once they’ve locked in a sale, they’ll reverse that position.
These dynamics play out every day in coffee trading, shaping how different players manage risk and make buying or selling decisions.
Looking at the market as it stands today
If you're following coffee prices, you’ll often check the C-market price - TradingView is one place to do that. For this discussion, let’s focus on Arabica, which trades on the New York market (denoted as “KC” for futures contracts).
To understand what you’re looking at:
This is the price chart for “KC1!”, where “KC” refers to the Arabica futures contract, and “1!” picking the nearest expiration date (“2!” would pick the second-nearest expiration date, etc. etc.). It’s currently trading at 414.20 cents per lb.
Beyond just price, platforms like TradingView provide different tools to help interpret the market. The “News” tab would give you news articles tied to the futures contract (usually reports on weather and harvest conditions and inventory levels); the “Ideas” tab trading opportunities; “Technicals” indicators as well as the “Forward curve”; “Seasonals” comparing price evolutions over the past few years; and finally a list of all futures “Contracts” being traded currently.
If you’ve ever checked a stock chart, this setup will feel familiar - it’s all about seeing where the market stands and what’s been influencing recent price movements.
Looking forward: Where is the market headed?
Understanding where the market is expecting prices to go is as important as understanding where it’s headed.
There are a couple of indicators you can take into consideration, first and foremost the forward curve introduced above. The forward curve plots prices of futures contracts against their respective expiration dates, giving you an indication of where things are headed. The curve itself shifts and moves continuously, every time any of the contracts are traded; the curve may shift up or down, but it’s also changing its slope over time.
At the time of this writing, the forward curve is downward-sloping, meaning coffee shipped in the near future is more expensive than coffee shipped at later dates. The technical term for this is backwardation, whereas an upward-sloping curve would mean the market is in contango.
Backwardation is unusual in the historical context. Most of the time, the market is in contango. In particular for big traders, backwardation is somewhat an issue: It means that between them buying a position, shipping it to a destination and then selling it, the coffee will lose some of its value, leading to pressure to sell off the position as soon as possible.
Contango is much more favorable in traditional trading, because as you hold the coffee, it becomes more valuable, allowing you to offset storage costs and other related costs – this is commonly referred to as pocketing the carry. For roasters operating under direct trade models, this is less of a concern. Since they choose their shipping timelines and aren’t reselling green coffee, they can align purchases with a pricing structure that suits them best.
The other piece that sheds some light on where the market is expected to head are the so-called COT Reports (Commitment of Traders Reports), published weekly by the CFTC (Commodity Futures Trading Commission), the regulatory body overseeing trading on the ICE exchange. Every week, it aggregates all the futures and options bought on the C-market, how these futures are distributed over merchants and speculators (“specs”). Merchants are the market participants usually buying and selling coffee physically – traders, importers, producers and roasters – whereas speculators have no interest in ever getting coffee physically, like hedge funds or the like.
Merchants primarily use futures to hedge price risk, so their long or short positions don’t necessarily indicate a market prediction. However, speculators’ positions can offer a clue - they’re betting on where prices will go. If they’re net long, they expect prices to rise. If they’re net short, they’re anticipating a drop.
Specs are different. They have no interest in ever getting physical delivery, they try to make money but figuring out where the price will go in the future, and then take positions accordingly. In other words, it tells you what funds think where the price will go. If they’re net long, they expect prices to rise in aggregate, whereas if they’re short, they expect prices to fall.
Looking at an example report, you see that merchants are overall short in the market – overall, they bought 37’064 of contracts, but sold 82’718, being net short. You’d expect traders and producers to be overall short in the market most of the time, because going short in the financial market hedges out the price risk of being long in the physical market.
It’s important to point out that you don’t see when these contracts were bought or sold and at what prices, so from this alone, you don’t know whether they make any profit or loss on the contracts. The only thing you do know is that being overall short, they’ll lose money on these positions if the C-market rises.
For specs, in particular Managed Money, it’s exactly the opposite: they bought 62’588 contracts but only sold 4’697 contracts, being overall net long. In other words, they start making money if the C-market rises, and since they’re primarily betting on the direction of the price without ever wanting to buy the physical coffee, you can deduce that these funds expect prices to rise.
What does it all mean? Using the C-Market for differential contracting
So why does any of this matter for you? There are two key takeaways:
- The C-market is the pulse of the global coffee trade. Even if you’re not actively trading futures, roasters and producers track price movements to understand contract pricing.
- You can use the C-market for differential contracting.
Whereas most of the contracts on Algrano are done on a fixed price, differential contracts allow you to contract coffee at a “diff”: instead of locking in an absolute price, you define it as “C-market + premium” (with the premium reflecting coffee quality). This means that while you commit to a volume and shipping period, you have flexibility in pricing.
In this setup, you contract a specific coffee for a defined volume and shipping period, but you don’t lock in the price as of yet. Instead, you can fix the price any time between contracting and shipping, reacting to how the c-market evolves. Ideally, a roaster fixes at a low price, while a producer fixes at a high price; but of course, the c-market may also move against you.
That said, differential contracting isn’t for everyone. It comes with risks: futures are traded in container-sized volumes, and margin calls can be a factor. If you're considering this approach, it’s worth diving deeper into the mechanics. If you'd like to explore it further, reach out to your Algrano contact - we’d be happy to dive in!
