Two beans, two markets
Arabica is grown at altitude, tastes better, yields less and is more fragile. It sets the price you associate with coffee, through ICE's "C" contract in New York. Robusta is hardier, higher in caffeine, harsher in flavour, and goes into instant coffee and espresso blends; it trades in London.
Brazil and Vietnam dominate production — Brazil in arabica, Vietnam in robusta — which concentrates weather risk in two countries.
The frost trade
Coffee's reputation for volatility comes from a specific mechanism. Arabica trees take three to four years to bear fruit. A severe frost in Brazil's growing regions does not just damage one harvest, it can kill trees, removing supply for years. The market prices that instantly and enormously: frost events have produced price doublings within weeks.
Drought works similarly, more slowly. The 2021 Brazilian frost and drought, followed by poor Vietnamese harvests, pushed both contracts to multi-decade highs.
The producer's share
The exchange price covers green, unroasted beans. By the time coffee reaches a cup in London, the green bean cost is a small fraction of the retail price — a fact behind fair trade certification schemes and direct-trade relationships, which operate as a parallel market with negotiated premiums over the C price rather than independent of it.
How you would actually trade it
Exchange access is professional. Retail exposure is through soft commodity ETCs, CFDs and spread bets, all subject to roll effects.
The specialty end of the market is genuinely different: green coffee for roasteries trades through importers on quality scores and relationships, at prices largely decoupled from the exchange. That is a physical trading business, not a financial one.
What goes wrong
- Frost and drought risk concentrated in Brazil can move price 50%+ in weeks.
- Multi-year supply response. Trees take years to plant and years to replace, so shortages and gluts both persist.
- Currency. Brazilian real moves feed directly into dollar coffee prices via producer selling behaviour.
- Leaf rust and pests periodically devastate regional output.
This entry describes how a market works. It is not a recommendation, a price forecast, or advice about whether this belongs anywhere near your money. How entries are written.