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Contract vs Spot Buying

Contract Buying

Contract buying in the coffee industry refers to an agreement between a coffee buyer and a coffee importer, to purchase a specified quantity of coffee at a set price, with delivery at a future date.

This allows the roaster to secure their coffee of choice continuously that may not yet be available or has not yet been harvested, and helps to mitigate price, quality and fluctuations in the market and possibly having to use other coffee variety or grades.

The terms of a coffee contract typically include the quantity and quality of the coffee to be purchased, the price per kilo, the delivery period, and the terms of payment.

Advantages

Price Stability

One of the primary advantages of coffee contracts is that they allow coffee buyers to lock in a price for a specific quantity of coffee over a set period of time. This helps to provide price stability, which is particularly important for roasters who need to plan their pricing and manage their margins.

Quality Control

Coffee contracts play a crucial role in maintaining quality control by establishing specific standards and expectations between the buyer and the seller. These contracts typically outline the agreed-upon quality parameters, which include factors such as bean origin, processing methods, cupping scores, and other quality attributes.

Supply Chain Efficiency

By working with a specific producer or group of producers, buyers can create more efficient supply chains that reduce the time and cost of transporting coffee from origin to destination.

Risk Management

Contracts can help to reduce the risk associated with volatile market conditions, such as sudden price spikes or supply shortages. By having a contract in place, buyers and sellers can manage their risk exposure and protect themselves from market fluctuations.

Relationship Building

Long-term contracts can help to build strong relationships between buyers and sellers, which can lead to better communication, improved collaboration, and a more sustainable and socially responsible coffee industry.

Spot Buying

Overall, spot buying can be a good option for small purchases or to fill a short-term need for coffee. However, for larger and long-term purchases, contracting may be a better option due to the price stability and quality control that it offers.

Advantages

Immediate Availability

One of the biggest advantages of spot buying is that the coffee is readily available. There is no waiting time for shipping or receiving the coffee.

Flexibility

Spot buying offers greater flexibility in terms of quantities, as there is no obligation to purchase in bulk.

Lower Administrative Costs

Spot buying requires less administrative work compared to contracting, as there are no agreements or contracts to be signed.

Disadvantages

Price Volatility

Coffee prices are subject to significant volatility due to various factors, including weather conditions, geopolitical events, C price, and currency exchange rates. These variables mean prices are very unstable day to day.

Limited Supply

There is a risk of limited supply with spot buying, especially if the demand is high.

No Price Protection

Spot buying does not offer price protection, and the buyer is exposed to the risk of price fluctuations.

Higher Price

Spot buying can be more expensive than contracted buying, especially if the coffee is in high demand.

Limited Quality Control

When buying spot, you may end up purchasing coffee that does not meet your quality level, origin, cup profile, and processing method preferences.

What is “C" price?

AN Industry Benchmark

The "C price" in the coffee industry refers to the Coffee "C" futures contract traded on the Intercontinental Exchange (ICE) in New York. The C price is a benchmark price for Arabica coffee, which is the most widely traded coffee commodity in the world.

Price Value

The price is quoted in US cents per pound and is determined by supply and demand factors, as well as global economic and political events that may impact the coffee market. The C price is used as a reference price for the physical buying and selling of coffee, and is also used as a basis for hedging and speculation in the coffee futures market.

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Brokering with OCT
Brokering with OCT

We take all the risk! If there is an issue with quality or any delays, they are handled buy OCT, and it is our responsibility to keep you supplied.

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Custom Blends & Cupping
Custom Blends & Cupping

Using our SCAA lab and vast expertise, we can assist you in crafting your perfect blend, bringing magic to your coffee experience. Let our knowledge and resources create a unique and enchanting coffee blend tailored to your taste.

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