In fact, the term “differential price” (or “minus price”) in Vietnam’s coffee trade is a colloquial expression commonly used by Vietnamese exporters. Historically, when coffee exports still relied on intermediaries and commodity brokers, Vietnamese coffee was never sold at a “plus price” (premium).
Correct Terminology for Markets and Contract Types
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To be precise, this refers to the export coffee price on an FOB basis, calculated as the difference (differential) between the Free on Board (FOB) delivery price and the listed price on the coffee futures exchange.
These transactions are collectively known as forward contracts—a type of coffee trading agreement where price, quality, and delivery time are negotiated without following the standardized specifications required by futures contracts.
Here, it should be clarified that many people—including researchers and scholars—often confuse the two: they call forward contracts “futures contracts” and vice versa. They’ve mutually agreed to use these terms interchangeably, though technically, that usage is incorrect.
In reality, those who made such distinctions lacked actual trading experience. Decades ago, when the English term “terminal market” or the French “marché à terme” was replaced by “futures market”, it rightfully referred to what we call the kỳ hạn market in Vietnamese. Many mistook the “s” in futures to mean “future time,” and thus incorrectly translated it as “thị trường tương lai” (future market). This translation is semantically inaccurate.
Understanding Price Differentials
Based on the differential:
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If the buyer agrees to purchase below the listed price → discount (giá trừ lùi)
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If the buyer pays above the listed price → premium (giá cộng tới)
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If the buyer pays at the listed price → flat price (ngang giá niêm yết)
In the coffee market, two types of trades coexist:
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Outright transactions – immediate pricing based on market price at the time of agreement.
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Differential-based transactions – where the final price is fixed later, known as Price-To-Be-Fixed (PTBF) contracts.
Selling at a Discount: Lower Risk?
A PTBF contract is considered less risky, since its price movements are smaller than those of outright contracts.
For example:
During a given period, if outright prices on the exchange increase by over USD 200/ton, PTBF prices may fluctuate only within a range of +20 to -65 USD/ton — a total spread of about 85 USD/ton. These fluctuations occur more slowly and are not as volatile on an hourly or daily basis as outright prices.
Looking at Giacaphe.com, the current differential is –65 USD/ton under the London price, compared to previous periods of only –40 to –50 USD/ton.
When exchange prices rise sharply, buyers often widen the discount to secure cheaper purchases, lower risk exposure, and protect their profit margins. Some even buy additional volumes they don’t immediately need—simply because the discount is favorable. Thus, motivations behind discount pricing are complex and highly situation-dependent.
“Discount Contracts” Help Buyers Manage Capital
Sellers often complain about wider discounts without considering the buyer’s financial constraints.
When exchange prices rise, but buyers’ credit limits remain fixed, they extend discounts to reduce immediate payment obligations.
Buyers may also negotiate to pay only 60–70% of the shipment’s value upfront, leaving the remaining amount “pending” until the price is fixed. This practice is justified as a safeguard against falling market prices—but effectively allows buyers to use sellers’ capital. Sellers, eager to speculate on rising prices, often overlook that this “pending amount” represents substantial working capital that still incurs interest and financial costs.
In many cases, buyers intentionally exploit this. If the market moves against the seller and the seller requests to roll over to another delivery month, the buyer may charge an additional “rollover fee” (sometimes over USD 10/ton). After several rollovers, the final settlement often leaves sellers with little profit—or even losses—once all fees and price drops are accounted for.
Avoid Letting Buyers Hold Too Much “Discounted” Inventory
Sellers frequently lament deep discounts yet fail to protect themselves from buyer manipulation.
The deeper the discount, the harder it becomes to fix prices favorably; sometimes, the final price for delivered coffee may even be below the prevailing market price.
It is advisable that, whenever the market turns unfavorable—even if only breaking even or accepting a small loss—sellers should promptly fix prices with their import buyers. Afterwards, they can use futures or options contracts through legitimate brokers to hedge their position. This protects them without further empowering the same buyers who are already leveraging their capital and charging rollover fees under the guise of “market ethics.”
This essay is not intended as direct trading advice, but rather as an analytical reflection—offering perspective on developing more efficient and sustainable trading strategies for Vietnam’s coffee export sector.