Recently, many farmers have asked Y5Cafe: What does it mean to trade coffee on the futures market? How is it done? What benefits can farmers gain by participating in the coffee futures market?
Today, Y5Cafe summarizes some key points to help everyone understand coffee trading on the futures market.
Security for Farmers
In the simplest terms, the futures market works like a form of insurance. For example, a coffee farmer in Đắk Lắk might fear that the world coffee price will fall before his coffee is harvested and brought to market. Conversely, a coffee roaster in Europe may worry that coffee prices will rise before receiving their shipment of green coffee beans.
In this situation, the farmer can sell coffee for delivery at a specific future date, when the harvest is ready, and the roaster can buy coffee for the same future date. They can do this by buying and selling through brokers on the futures market, rather than directly with each other. The brokers act as intermediaries, committing to buy or sell a specified quantity of coffee at a set price for future delivery.
Thanks to this futures contract, both the farmer and the roaster can feel secure because they know in advance the price at which they will sell or buy the coffee, regardless of unpredictable factors such as weather or pests that might affect supply and demand.
On the futures market, speculators—who may be banks, investment funds, or individual investors—enter purely to seek profits, just as in any other market. A speculator who does not own any coffee might decide that prices will rise. In that case, they will buy coffee futures contracts with the intention of selling them later at a higher price. If their price prediction is correct, they profit; if not, they incur a loss.
Speculators are essential to the futures market, making it more liquid and dynamic.
Power in the Hands of Farmers
Many factors influence coffee prices: harvests, weather, natural disasters, and conflicts. While speculators can sometimes distort prices, these effects are usually temporary.
Even though farmers typically sell their coffee only to local collectors, this does not mean they have no role in the futures coffee market. According to Lisa Essex, a veteran commodities reporter for Reuters, the strength of farmers lies in the fact that “they hold the real product.”
Farmers may not directly trade on the futures market, and coffee is rarely bought and sold “face to face” with roasters, but when they organize into farmer associations with a strong collective voice, they can negotiate with roasters when local collectors try to push prices too low.
“In cases of price suppression, coffee farmer cooperatives can decide not to deliver their coffee, the real product they physically possess,” Lisa explains. “This information, when it reaches the market—especially roasters—has an immediate impact. Because the market is driven by supply and demand, and what roasters and processors fear most is a shortage of raw materials.”
How Vietnamese Exporters Access the Futures Market?
Vietnamese coffee export companies trade on the London coffee futures market through Techcombank.
According to a Techcombank staff member responsible for futures trading, the bank acts only as a broker, connecting Vietnamese clients to members of the London exchange. Using an electronic trading system provided by foreign partners, Techcombank receives client orders from Vietnam and then matches these orders with exchange members.
Of course, companies trading through Techcombank must pay brokerage fees and post margin deposits as part of the process.