Kenya green coffee prices at Kenya coffee exchange

Coffee pricing board at the Kenya coffee exchange

Market Participants

Many thousands of market participants, some of whom are actually involved with the physical commodity, but most of whom are not (other than as coffee drinkers), ensure that the futures markets maintain liquidity — i.e., at any one time, there are buyers to match the sellers — and the yearly traded exchange volume exceeds physical coffee consumption many times over.
The futures markets are used by physical coffee participants (coffee producers, traders and roasters) to manage their price risks and to act as a ‘sponge’ — soaking up excess production or releasing stocks when fresh beans are scarce.

Price Volatility & Its Impact

Over time, futures markets come to reflect the basic underlying economic principles of supply and demand, but often with spasms of price volatility which can be caused by disruptive shock events (eg — a frost in Brazil) resulting in large price swings in both directions as shown in the below chart.

Green coffee price chart on Bloomberg Terminal

Green coffee price chart on Bloomberg Terminal


The evolution of the regulated futures exchanges and its widespread use as a price risk hedging instrument for the commercial actors in the trade — ie. producers, traders and roasters — resulted in the development of the green coffee price differential — simply put, the difference between the outright price of the physical coffee to the underlying worldwide price indicator (the Arabica and Robusta futures exchanges.).

The differential price is also expressed in US cents/lb for Arabica and in USD/MT for Robusta. Differentials are quoted by physical trade participants through their offer lists, for nearby and forward positions, and the expected difference between the highest and the lowest quote reflects the different costs and opinions from the various actors.

The general assumption was, and still is, that differential price movements — and hence risk — are considerably less than the underlying coffee price movements. By creating green coffee price differentials, does it become possible to manage price risk more effectively ? Maybe…

Differentials add another layer of complexity — each quality from each country trades at its own differential — Brazil mainstream naturals tend to trade at a negative differential, Colombia Excelso and Kenya AB FAQ at a positive differential. The simple chart below, focusing on only the most standard quality from each of these three origins, shows how volatile some differentials can trade over time. In the case of Kenya, differential price moves alone can be greater than the level of the underlying futures price.

Coffee Origin differentials

Tracking coffee country differentials

Frost in Brazil at Coffee Farms

Brazil coffee trees damaged by frost – July ’21

  1. Its differential price — as determined by country specific factors

Volatility and Market Movements

In these weeks following the frost in Brazil, no better time than the present to reflect on the price movements of the last 40 years — and their underlying reasons — to appreciate the historic challenges at both ends of the coffee value chain.

Green coffee prices with major events

Green coffee pricing chart – 1979 – 2021


  1. The adverse weather situation in Colombia: As the second largest producer of Arabica coffee worldwide, Colombia is facing a complex situation — somewhat opposite to that in Brazil’s arabica growing regions. The weather across Colombia’s coffee growing regions have faced above average rainfall preventing adequate heat stress on the trees which is requisite to a good flowering. Less flowers essentially mean less cherries. Added to the internal crisis that the country experienced some months ago, where strikes and road closures affected coffee exports, disrupted and reduced coffee supply feeds price volatility.
  2. Mild Arabica deficit overall: Many East-African and Central American coffee producing origins have seen little investment in production over the past three years due to years of low coffee prices. This, together with off-cycles in several origins, will result in a statistical deficit of Mild Arabica in the coming season.