What is going on with the C-Price for Arabica Coffee?
In the coffee world we talk about the "C-Price" when refering to a baseline for coffee pricing. The "C" stands for "commodity". In other words, it is the price paid for a pound of green commodity grade coffee. As of writing this blog, the C-Price is at 301.65 (or $3.0165). The low price for 2024 was 173.10. The high price (335.00) was a 47 year high. Green coffee has almost doubled in price in the past year.
What impact does this have on specialty coffee? First, it's important to not underestimate the influence of the C-Price on the cost of coffee across the board. Specialty coffee, is still dependent upon the C-Price. When roasters purchase coffee from importers we talk about the C-price +. In other words, coffee will be priced, for example, C-Price +215 which would mean that if the C-Price for that day is 301.65, the final price would be $5.17 / lb. Even when we do direct trade with farmers we still have to be aware of the C-Price. If coffee is specialty grade we are going to be offering a price that's higher than the C-Price.
As the price has risen over the past year it has squeezed financier, large farms and importers. You may have heard recently about the financing crisis of Montesant Tavares Group Participacoes SA. Basically financiers are being asked to put up more money to cover the spread. Algrano has done a great job explaining this problem. Think 2008 housing crisis for coffee.
As contracts from last year start to wind down, roasters are starting to feel the pinch. Today, it's highly likely that coffee will be considerably more expensive in 2025 than it was in 2024.
Quick side note: On the other hand, while specialty coffee roasters generally want to get more money to farmers, the money itself has typically worked as an incentive for growing and processing better coffees. A downside to a high C-price is less incentive for farmers to grow more excellent coffees. One of the fears in the specialty market is that if farmers are satisfied with receiving $3.00/lb there will be less specialty on the market, driving prices up even further.
Before we get into crazy conspiracy theories; in fact, let's avoid them all together... this is due to the drought in Brazil and Vietnam. Vietnam? Yes, Vietnam is the world's second largest producer of coffee. Robusta coffee is grown in Vietnam. It is lower grade, but it's all about supply and demand. When there's less robusta, prices go up. People that are too price sensitive don't purchase arabica anymore and they start buying robusta. Then there's more demand for robusta and there's still less supply. It's a downward cycle.
Anyway, what are we doing about this? For one thing, we can plan ahead. Once the price is a little better, coffee roasters can purchase contracts. Supply and demand will work themselves out. We can also build trust with farmers where we can ride out extreme volatility together knowing that if a farmer has my back today, I'll have his or her back next year.
What is Tug Hill Artisan Roaster's take? I believe that the price is high right now. No doubt there is a drought in Brazil and Vietnam, but officially reported export numbers don't reflect a crisis. Neither does the official inventory count. In addition to the climate, I believe there is some speculation on behalf of commodity investors (shorters). No doubt investors lubricate the system, but they can also create bubbles. Furthermore, I would wager to say that farmers are holding onto inventory in the hopes that the price will continue to climb. There is coffee in Brazil. While the screen size might be smaller due to the drought, we will have a better idea of real inventory in a little while. Once that happens the price will start to come down.
Before the Covid-19 pandemic, coffee had been hovering around $1 / lb. Farms were going bankrupt right and left and it was causing genuine difficulties in coffee producing region. While mechanized Brazil is its own beast, most farms in Central America can cover their costs when coffee is priced from $1.50-1.75/lb.
For the near future, we will purchase coffee without contracts. Once the price comes back down a bit we will set up contracts for 2025. As a roaster with direct trade partners, I would like to see C-prices stabilize around $2.50. In the current environment, I believe this would be a good price where everyone can make a go of it.
How will this impact coffee in the cup? Probably not much. Roasters will have to purchase more expensive coffee in 2025. It wouldn't surprise me to see a 10-25% increase in the cost of roasted coffee across the board (coffee itself is typically still less than half of the total expenses of a coffee roastery.) However, at the end of the day the coffee itself is a tiny fraction of the cost of a cup of coffee. If you brew coffee at home, you'll notice a price increase, but you're already saving a lot of money. If you purchase coffee from your local coffee shop (good on you supporting your local coffee shop!) you may only see a difference of a few cents. Costs will be passed on, but the closer you are to origin, the more the price difference will be noticeable.
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