We grind the beans and they meet water. There are a lot of topics about coffee that we talk about, but there are more detailed titles in the market from the aspect of us, producers.
C Market is one of them. The history of coffee in these lands has deep roots, but this has always been on the consumer side because coffee does not grow in this geography. On the other hand, this is ignored by the public, and since the coffee consumed in daily routines has a mediocre quality , ignoring the fact that coffee has traveled thousands of kilometers, the climate crisis, seasonal events and, in our case, the exchange rate make it difficult for people to perceive the current price of coffee.
In this article, I would like to shed some light on this subject. Especially in the wholesale market, many companies we cooperate, suffer from price hikes, just like us. But they do not know the source of this, it is up to us as a producer to tell about it.
C Market
It is a global exchange where Arabica coffee is bought and sold every day around the world. So it's officially a stock market! Like sugar, wheat, cotton, oil or gold, coffee is considered a commodity.
So what does this commodity mean? In global trade, a commodity is considered a raw material used in the manufacture of a final product. Commodities can be exchanged for other goods of the same type, for example cotton produced in Çukurova has the same practice like one that's grown in China. Quality is essentially considered uniform across goods of the same type.
When it comes to coffee, coffees allowed to be traded at C Market must meet certain standards:
Must be Arabica.
It must be green (not roasted).
It must have been produced in one of the twenty pre-designated countries.
It must be traded in one of eight pre-designated international warehouses.
It must be traded in multiples of approximately 37,500 pounds (or about the size of a shipping container).
For Robusta, there is another exchange and rules.
The main function of C Market is to set the standard and rules of the coffee trade.
The spot market is where the actual physical sale of a good takes place and is called the spot market because the transactions are done "on the spot". However, there are two problems inherent in the spot market: liquidity and price discovery. In the spot market, the flow of goods can be inefficient and unstable; the seller does not always have a guaranteed buyer, and market conditions can be uncertain. Also, the seller has no idea what the selling price will be for the goods they sell until they actually bring their goods to market and can only set a price based on what others have sold.
What we refer to as C Market today is essentially a futures exchange. In coffee, the exchange on which coffee futures are currently traded is called the Intercontinental Exchange. (Intercontinental Exchange - ICE)
In this system, the exchange acts as a third party. The buyer buys the goods from this exchange, and the seller sells it to this exchange. The buyer or seller has the right to cancel their transactions on the futures exchange whenever necessary. Thus, if a buyer wants to cancel his contract, he can sell his goods directly to the stock market and another buyer has a chance to buy this good. They must do this before the contract expires. If the time expires, the contract owner has to take delivery of the physical goods in the contract.
Such an exchange has many participants. Many of them are not actually people who need coffee physically. They only aim to profit from fluctuations in the market. But these people have a great influence in the market because they provide liquidity.
So the entire coffee market is open to speculation. Issues such as the climate crisis, seasonal events, rumors, and pandemics have a direct impact on prices, but they can raise the market too much because they are a subject of speculation.
In the top image I got from investing.com, you can see the price of coffee in C Market since approximately January 2020. This increase is exactly 100%! Even the increase since July is around 40%.
The top image I got from doviz.com shows the exchange rate increase of the US dollar within 1 year. The increase since January is like 33%.
I leave the relationship between stock market and exchange rate and its effect on coffee prices to your imagination.