{ "id": "differentials", "url": "https://coffearium.org/entries/differentials/", "license": "CC-BY-4.0", "title": "Differentials", "summary": "The premium or discount that turns a futures price into the price of one real lot of green coffee – who sets it, what moves it, how the exchange’s own differentials differ, and why a futures hedge leaves it exposed.", "domain": "trade", "kind": "Concept", "stage": "trade", "topics": [], "topicSections": {}, "lang": "en", "status": "verified", "reviewer": "Coffearium verification pass", "lastVerified": "2026-10-16T00:00:00.000Z", "updated": "2026-10-16T00:00:00.000Z", "added": "2026-10-16T00:00:00.000Z", "brief": [ "A differential is the gap between the price of a physical coffee and a named futures month: a premium (plus) or a discount (minus). It is also called the basis.2,3", "Commercial differentials are negotiated lot by lot and are not published as a price reference.1", "Exchange differentials are fixed in the futures rules. As of October 2026, Coffee “C” delivers Colombia, Costa Rica and Kenya at +10 US cents per lb and Brazil at −6 cents.4", "A futures hedge covers the futures part of a price. A change in the differential between hedging and lifting the hedge – basis risk – stays with the trader.3", "In 2008/09, when Colombian supply fell, the International Coffee Organization (ICO) recorded the Colombian Milds premium over New York futures rising from 5.42 to 42.26 US cents per lb.15" ], "quickFacts": [ { "label": "Also called", "value": "Basis (cash price minus futures price)" }, { "label": "Unit", "value": "US cents per lb against ICE Coffee “C” (arabica); USD per tonne against ICE Robusta" }, { "label": "Point", "value": "1 point = 0.01 US cent per lb; 100 points = 1 cent" }, { "label": "Coffee “C” growth differentials (from the March 2026 contract)", "value": "Colombia, Costa Rica, Kenya +1,000 points; Guatemala +500; Brazil −600; Vietnam −600 from May 2027" }, { "label": "ICE Robusta quality classes", "value": "Class P +USD 30 per t; Class 1 at contract price; classes 2, 3, 4 −USD 30, 60, 90 per t" }, { "label": "Published?", "value": "Exchange differentials yes (rulebooks); commercial differentials no" } ], "aka": [ "Differential", "Coffee differential", "Physical differential", "Origin differential" ], "linkTerms": [ "basis risk", "growth differential", "commercial differential", "exchange differential", "origin premium" ], "related": [ "how-a-coffee-price-is-made", "coffee-futures", "green-coffee-contracts", "green-coffee-grading", "incoterms-for-coffee", "harvest-calendars", "certifications-and-labels" ], "contested": [ "Size of the 2008/09 fall in Colombian production: the ICO’s September 2009 market report gives −24% for crop year 2008/0914; the ICO Annual Review 2008/09 gives a fall of around 30.7%, to 8.7 million bags.15 Neither document explains the difference." ], "corrections": [], "sources": [ { "id": "s1", "title": "Economic Sustainability – Price, Cost, and Value", "authors": "Perez, J.; Kilian, B.; Pratt, L.; Ardila, J. C.; Lamb, H.; Byers, L.; Sanders, D.", "year": 2017, "publisher": "In: Folmer, B. (ed.), The Craft and Science of Coffee, Academic Press, ch. 6, from p. 133", "url": "https://doi.org/10.1016/B978-0-12-803520-7.00006-2", "doi": "10.1016/B978-0-12-803520-7.00006-2", "tier": "B", "tierNote": "Recognised textbook chapter; read in the local full text supplied by the editor. Counts as one source together with source 2.", "quote": "Differentials are usually less volatile than the international reference price", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s2", "title": "Trading and Transaction – Market and Finance Dynamics", "authors": "Nadelberg, E.; Polit, J. R.; Orjuela, J. P.; Ranitzsch, K.", "year": 2017, "publisher": "In: Folmer, B. (ed.), The Craft and Science of Coffee, Academic Press, ch. 9, pp. 205–223", "url": "https://doi.org/10.1016/B978-0-12-803520-7.00009-8", "doi": "10.1016/B978-0-12-803520-7.00009-8", "tier": "B", "tierNote": "Recognised textbook chapter; read in the local full text supplied by the editor.", "quote": "The relationship between cash and the futures price is called the “differential” or the “basis”.", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s3", "title": "CFTC Glossary", "publisher": "U.S. Commodity Futures Trading Commission", "url": "https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/CFTCGlossary/index.htm", "tier": "A", "tierNote": "Government regulator; definitions of basis, basis risk, differentials and exchange for physicals.", "quote": "The risk associated with an unexpected widening or narrowing of the basis between the time a hedge position is established and the time that it is lifted.", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s4", "title": "Coffee C® Futures: contract specifications", "year": 2026, "publisher": "ICE Futures U.S.", "url": "https://www.ice.com/api/productguide/spec/15/pdf", "tier": "A", "tierNote": "Exchange product specification; page dated 23 August 2026", "quote": "Coffees judged better are at a premium; those judged inferior are at a discount.", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s5", "title": "Amendments to Coffee “C” Rules: origin differentials (Submission No. 24-6)", "year": 2024, "publisher": "ICE Futures U.S., filing to the Commodity Futures Trading Commission", "url": "https://www.ice.com/publicdocs/regulatory_filings/24-6_Coffee_Rule_Amendments.pdf", "tier": "A", "tierNote": "Exchange filing of 11 January 2024; A for the rule change and the reasons the exchange states", "quote": "The amendments to the rules better reflect current commercial origin differentials", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s6", "title": "Robusta Coffee Futures: contract specifications", "year": 2026, "publisher": "ICE Futures Europe", "url": "https://www.ice.com/api/productguide/spec/37089079/pdf", "tier": "A", "tierNote": "Exchange product specification; page dated 16 October 2026", "quote": "Class 1 Robusta Coffee deliverable at Contract price.", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s7", "title": "Robusta Coffee Allowances and Discounts", "authors": "ICE Futures Europe", "publisher": "Intercontinental Exchange (ICE)", "url": "https://www.ice.com/publicdocs/futures/Robusta_Coffee_Allowances_and_Discounts.pdf", "tier": "A", "tierNote": "Exchange specification; A for the contract's own grading classes and allowances", "quote": "Up to a maximum of 3.0% Defects by weight and up to a maximum of 0.5% Foreign Matter by weight", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s8", "title": "Price announcement for Fairtrade Coffee (30 July 2026)", "authors": "Fairtrade International, Standards and Pricing", "year": 2026, "publisher": "Fairtrade International, Bonn", "url": "https://www.fairtrade.net/content/dam/fairtrade/fairtrade-international/standards/standards-and-pricing-work-in-progress/2026-07-30_Coffee%20Price%20Announcement_EN.pdf", "tier": "A/B", "tierNote": "A for the minimum prices, Premium and organic differential that the standard sets; B otherwise", "quote": "The Fairtrade Premium is paid in addition to the Fairtrade Minimum Price or market price, whichever is higher.", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s9", "title": "Coffee Market Report – September 2026", "year": 2026, "publisher": "International Coffee Organization", "url": "https://www.ico.org/documents/cy2025-26/cmr-0926-e.pdf", "tier": "A", "tierNote": "ICO statistics (monthly averages, US cents per lb)", "quote": "the Colombian Milds–Robustas differential narrowed 8.8% to 188.66 US cents/lb", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s10", "title": "Coffee Market Report – August 2026", "year": 2026, "publisher": "International Coffee Organization", "url": "https://www.ico.org/documents/cy2025-26/cmr-0826-e.pdf", "tier": "A", "tierNote": "ICO statistics (monthly averages, US cents per lb)", "quote": "The arbitrage between the London and New York futures markets expanded by 5.8% to 145.56 US cents/lb in August 2026.", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s11", "title": "Share of markets and their weightings in the calculation of group and ICO composite indicator prices from 1 October 2003 (ED 1887/03)", "year": 2003, "publisher": "International Coffee Organization", "url": "https://ico.org/documents/ed1887e.pdf", "tier": "A", "tierNote": "ICO statistical rules; the market shares set from 1 October 2003. Later revisions were not checked for this entry.", "quote": "Colombian Milds: 40% New York – 60% Germany", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s12", "title": "Coffee Market Report – June 2009", "year": 2009, "publisher": "International Coffee Organization", "url": "https://www.ico.org/documents/cmr-0609-e.pdf", "tier": "A", "tierNote": "ICO statistics; A for the price data, B for the market commentary", "quote": "from 80.62 US cents per lb in May to 66.93 US cents per lb in June, a fall of 17%", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s13", "title": "Coffee Market Report – July 2009", "year": 2009, "publisher": "International Coffee Organization", "url": "https://www.ico.org/documents/cmr-0709-e.pdf", "tier": "A", "tierNote": "ICO statistics; A for the price data, B for the market commentary", "quote": "down from 66.93 US cents per lb in June to 64.87 US cents per lb in July, a fall of 3.1%.", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s14", "title": "Coffee Market Report – September 2009", "year": 2009, "publisher": "International Coffee Organization", "url": "https://www.ico.org/documents/cmr-0909-e.pdf", "tier": "A", "tierNote": "ICO statistics; A for the price and production data, B for the market commentary", "quote": "the price differential between Colombian Milds and the New York 'C' Contract has fallen steadily", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s15", "title": "ICO Annual Review 2008/09", "year": 2010, "publisher": "International Coffee Organization", "url": "https://www.ico.org/documents/annual-review-10e.pdf", "tier": "A/B", "tierNote": "A for the coffee-year averages in its Table 2 (the column is identified by the stated 680% rise; its header is garbled in the text layer); B for the explanation of causes.", "quote": "an unprecedented increase in the premium for this origin", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s16", "title": "Explaining coffee price differentials in terms of chemical markers: Evidence from a pairwise approach", "authors": "Otero, J.; Argüello, R.; Oviedo, J. D.; Ramírez, M.", "year": 2018, "publisher": "Economic Modelling 72, 190–201", "url": "https://ideas.repec.org/a/eee/ecmode/v72y2018icp190-201.html", "doi": "10.1016/j.econmod.2018.01.017", "tier": "A", "tierNote": "Peer-reviewed; abstract read (RePEc and the Universidad del Rosario repository).", "quote": "varieties with chemical similarity have prices which are more similar", "abstractOnly": true, "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s17", "title": "Price Determinants in Top Quality E-Auctioned Specialty Coffees (Staff Paper 2007-02)", "authors": "Donnet, L.; Weatherspoon, D.; Hoehn, J. P.", "year": 2007, "publisher": "Department of Agricultural Economics, Michigan State University", "url": "https://ageconsearch.umn.edu/record/9310/files/sp07-02.pdf", "tier": "B", "tierNote": "University working paper without stated peer review (tier decision of 8 Oct 2026 for unreviewed university papers).", "quote": "an e-auction in which coffees are sold to the highest bidder", "accessed": "2026-10-16T00:00:00.000Z" }, { "id": "s18", "title": "The Effects of FTO Certification on FOB Prices for Specialty Coffees (SCTG Data Brief 1)", "authors": "Specialty Coffee Transaction Guide research team", "year": 2020, "publisher": "Specialty Coffee Transaction Guide, Emory University (Goizueta Business School)", "url": "https://goizueta.emory.edu/sites/default/files/documents/SCTG%20Data%20Brief%201%20-%20Certifications%20%28English%29%20Final.pdf", "tier": "B", "tierNote": "Data brief of a university research team, not peer-reviewed.", "quote": "How does fixed versus differential contracting influence green coffee prices?", "accessed": "2026-10-16T00:00:00.000Z" } ], "markdown": "## What a differential is\n\nMost green coffee is priced in two parts. The first is a futures price, set on an exchange and published every trading day. The second is the differential: a premium or discount that belongs to one particular coffee.1,2 The price of the physical coffee is the futures price plus the differential.\n\nFor arabica the reference is the Coffee “C” contract in New York, quoted in US cents per pound (lb).4 For robusta it is the London robusta contract, quoted in US dollars per tonne.6 A differential is always stated against one of these, and against a named delivery month (see Coffee futures).\n\nThe trade also calls the same gap the “basis”.2 In the general futures definition, the basis is the cash price minus the price of the nearest futures contract. It may reflect differences in time, product form, grade and location.3\n\n## Who sets it\n\nCommercial differentials are not published as a price reference. Seller and buyer negotiate one for each lot: a batch of coffee from one origin and process, traded as a unit.1 According to a 2017 textbook chapter, this is most of the time a buyer’s market, in which a few large buyers dominate the trade.1\n\nIn a typical chain, a cooperative or exporter sells to an importer or roaster. They agree quantity, quality, shipment month and the differential, and leave the futures part open.2 That futures part is fixed later against the futures month named in the contract.1,2 How such contracts are written is explained in Green coffee contracts.\n\n## What moves a differential\n\nA differential packs several things into one number. According to the textbook chapter, it blends quality, origin and supply and demand in the producing country.1 The definition of the basis adds time and location.3 In practice the main drivers are these:\n\n- **Origin.** Buyers pay more for some growths than others. The exchange’s own schedule shows this: Colombian coffee is delivered at a premium, Brazilian at a discount.4\n- **Quality and bean size.** Cleaner coffee and larger screen sizes earn more. The robusta contract prices this directly, with a premium for its best class and discounts for weaker ones.7\n- **Certification.** Certified coffee can carry extra money. Fairtrade adds a Premium and an organic differential to its minimum or the market price.8\n- **Shipment period.** A differential is stated against a named futures month. Futures months differ from each other by the spread.2,3\n- **Location and logistics.** A price at the port of export (free on board, FOB) differs from a price in a European warehouse. Freight and other costs lie between them.2,3\n- **Local supply and demand.** When one origin has a short crop, its differential can rise.1,15\n\nThe figure shows the two parts of one price. Each part can move between the day a contract is signed and the day its price is fixed.\n\n
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A · Contract day

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    \n
  1. Futures part. The price of the named futures month on the exchange. It is published and moves every trading day.2,4
    2. \n
  2. Differential. The premium or discount agreed for this lot. It is negotiated, not published.1
    3. \n
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B · Fixing day

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    \n
  1. Futures has moved. A futures hedge offsets this change.3
    2. \n
  2. Differential has moved. A change in the basis is not covered by the hedge: basis risk.3
    3. \n
  3. Physical price. The futures price on the fixing day plus the agreed differential.2
    4. \n
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A physical green coffee price as a futures part plus a differential; both parts can move between contract and fixing. Schematic, not to scale.
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\n\n## Exchange differentials and commercial differentials\n\nThe word “differential” has two meanings in coffee. The first is set by the exchange. A futures contract names a standard quality, the basis grade. Coffee better or worse than that standard is delivered at a fixed premium or discount.3 The Coffee “C” rule is short: coffees judged better are at a premium; those judged inferior are at a discount.4\n\nAs of October 2026, Colombia, Costa Rica and Kenya are delivered at a premium of 10 US cents per lb, and Guatemala at 5 cents. Brazil is delivered at a discount of 6 cents.4 From the May 2027 contract, Vietnam can also be delivered, at a discount of 6 cents.4\n\nThe second meaning is the commercial differential, agreed in a real trade. It is not published.1 The two are linked. In 2024 ICE raised the premiums for Colombia, Kenya, Costa Rica and Guatemala. It said the change would better reflect current commercial origin differentials.5 The exchange schedule changes only by rule amendment. Commercial differentials, in the words of the ICE filing, are constantly subject to change, both within and across crop years.5\n\n## Why a hedge does not cover it\n\nA trader who holds coffee can protect it against falling prices by selling futures (see Coffee futures). If prices fall, the futures gain makes up for the loss on the coffee. This works only for the futures part. If the differential changes between the day the hedge is placed and the day it is lifted, that change stays with the trader. Regulators call this basis risk.3\n\nThe following example uses round, invented numbers. **They are example values, not market quotes.**\n\n| Step (example) | Physical coffee | Futures |\n|---|---|---|\n| Day 1 | An importer buys a lot at 340 ¢/lb: futures 300 + differential 40 | Sells futures at 300 ¢/lb |\n| Day 2 | Sells the lot at 290 ¢/lb: futures 260 + differential 30 | Buys the futures back at 260 ¢/lb |\n| Result | Loss of 50 ¢/lb | Gain of 40 ¢/lb |\n| Net | | −10 ¢/lb: the change in the differential (40 → 30) |\n\nThe hedge removed the effect of the 40-cent fall in futures. What remained was the 10-cent fall in the differential (our arithmetic). Had the differential risen to 50, the importer would have gained 10 cents instead.\n\n\n\n## Definitions: basis, differential and basis risk\n\nThe US Commodity Futures Trading Commission (CFTC) separates the terms clearly. The basis is the difference between the spot or cash price and the price of the nearest futures contract, usually calculated as cash minus futures; it may reflect different time periods, product forms, grades or locations.3 Differentials, in the CFTC’s use, are the discounts or premiums allowed for grades or locations below or above the par grade of a futures contract.3 Basis risk is the risk of an unexpected widening or narrowing of the basis between the time a hedge is placed and the time it is lifted.3\n\nThe coffee trade uses “differential” for both: the exchange’s fixed allowances and the negotiated cash-minus-futures gap.1,2,4 This entry calls them exchange differentials and commercial differentials. The 2017 textbook chapter also names the gap between two futures months, the spread, as a separate variable of economic importance.2\n\nA commercial differential has no meaning without the futures month it refers to. A lot shipped in October may be priced as “December plus 40”; if the same lot were priced against March, the differential would differ by the December–March spread. This follows from the definition of the basis against a named contract (our reading of the CFTC definition).3\n\n## Reference values: exchange differentials, as of October 2026\n\n| Parameter | Value | Source |\n|---|---|---|\n| Point, Coffee “C” | 1/100 of a US cent per lb; 1,000 points = 10 cents | 4,5 |\n| Colombia, Costa Rica, Kenya | +1,000 points (from the March 2026 contract) | 4,5 |\n| Guatemala | +500 points (from the March 2026 contract) | 4,5 |\n| Mexico, El Salvador, Nicaragua, Papua New Guinea, Panama, Tanzania, Uganda, Honduras, Peru | Par | 4 |\n| Burundi, Rwanda, Venezuela, India | −100 points | 4 |\n| Dominican Republic, Ecuador | −400 points | 4 |\n| Brazil | −600 points | 4 |\n| Vietnam | −600 points, from the May 2027 contract | 4 |\n| Delivery ports, Coffee “C” | New York and Virginia par; New Orleans, Miami, Houston −0.50 ¢/lb; Bremen/Hamburg, Antwerp, Barcelona −1.25 ¢/lb | 4 |\n| ICE Robusta, Class P | +USD 30 per t (≤0.5% defects, ≤0.2% foreign matter by weight; ≥90% over screen 15 round) | 7 |\n| ICE Robusta, Class 1 | Contract price (≤3.0% defects, ≤0.5% foreign matter; ≥90% over screen 14 round) | 6,7 |\n| ICE Robusta, classes 2, 3, 4 | −USD 30, −60, −90 per t | 7 |\n| Fairtrade organic differential | +USD 0.40 per lb on top of the Fairtrade Minimum Price or the market reference price, whichever is higher (price announcement valid from 1 December 2026) | 8 |\n| Fairtrade Premium | USD 0.20 per lb | 8 |\n\nThe exchange rules prevail; the specification pages were opened on 16 October 2026. ICE gave the reason for the 2024 change in its filing: the committee had observed commercial origin differentials over recent years, and the amendments align the contract more closely with the cash market.5 The schedule took effect with the March 2026 contract, more than two years after the filing.5 Growth and port differentials in the context of the whole contract are in Coffee futures; how defects and screen sizes are counted is in Green coffee grading.\n\n## Published differential levels\n\nCommercial differentials are private, but the ICO publishes a proxy. Its group indicator prices combine prices from markets in importing countries; for Colombian Milds the ICO in 2003 weighted New York at 40% and Germany at 60%.11 The ICO also publishes the average of the New York futures, and in its 2008/09 review it reported the gap between Colombian Milds and the average of the second and third New York positions.15 This gap is a group average in consuming markets, not the FOB differential of a single lot.\n\n
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Colombian Milds indicator price minus the New York futures average, in US cents per lb, as reported by the ICO for 2007/08 to September 2009; the 2026 values are our arithmetic from the ICO’s monthly averages.9,10,12,13,14,15
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\n\n| Period | Colombian Milds minus New York (US cents per lb) | Source |\n|---|---|---|\n| Coffee year 2007/08, average | 5.42 | 15 |\n| Coffee year 2008/09, average | 42.26 | 15 |\n| May 2009 | 80.62 | 12 |\n| June 2009 | 66.93 | 12,13 |\n| July 2009 | 64.87 | 13 |\n| August 2009 | 53.34 | 14 |\n| September 2009 | 46.12 | 14 |\n| August 2026 | 74.26 (387.46 − 313.20; our arithmetic) | 10 |\n| September 2026 | 75.47 (356.15 − 280.68; our arithmetic) | 9 |\n\nOther ICO groups show smaller gaps over the same futures. In September 2026, Other Milds averaged 329.44 and Brazilian Naturals 290.19 US cents per lb, against a New York average of 280.68; robustas averaged 167.49 against a London average of 154.28.9 The ICO also reports differentials between its groups: in September 2026 the Colombian Milds–Brazilian Naturals differential widened to 65.95 US cents per lb, while every arabica–robusta differential narrowed.9\n\n## Tight markets, short crops and price spikes\n\nA short crop at one origin can push its differential up. In crop year 2008/09, Colombian production fell by 24%, according to an ICO market report; the ICO attributed the tight supply of Colombian Milds to climatic problems and a tree replanting programme.14 The ICO’s annual review gives a larger fall, around 30.7% (see Contested).15 The ICO described the result as an unprecedented increase in the premium for this origin.15 The Colombian Milds premium over New York averaged 5.42 US cents per lb in 2007/08 and 42.26 in 2008/09, a rise of 680%.15 The 2017 textbook chapter describes the same episode from an exporter’s side: Colombian differentials rose within a few weeks and pulled the differentials of other origins up behind them.1\n\nThe spike did not last. In the ICO’s monthly series the premium fell from 80.62 cents in May 2009 to 46.12 cents in September 2009.12,14 The ICO expected Colombian supply to return to normal in crop year 2009/10.14\n\nA forward seller is exposed to such moves. The textbook chapter describes an export manager who sold much of the expected crop forward at the old differentials; when differentials jumped, the cooperative’s members believed they could have earned much more.1 The same chapter notes that a cooperative bound to a fixed price can lose its members’ coffee to other buyers when market prices rise, and may then default.1\n\nDifferentials and futures do not always move together. In September 2026 the New York average fell by 10.4% on the month, while the Colombian Milds gap over it barely changed (74.26 to 75.47 cents; our arithmetic).9,10 Two months are not a trend, and no source opened for this entry measured how commercial differentials behave across price spikes in general (see Open questions).\n\n## Specialty coffee and outright prices\n\nSome coffee is not priced against the exchange at all. Second- and third-wave roasters often buy FOB from exporters or cooperatives, or directly from producers, and organise freight and insurance themselves.2 Contracts can fix one complete price at once (an outright price) or use futures plus a differential (see How a coffee price is made). The Specialty Coffee Transaction Guide, which collects FOB contract prices, lists fixed versus differential contracting as one of the questions its data can answer.18\n\nAuctions set prices by bidding. In the Cup of Excellence auctions studied in a 2007 university working paper, coffees were sold online to the highest bidder, and prices rose with the competition’s quality score.17 According to that paper, the winning Brazilian coffee of 2005 sold for many times the ICO price for Brazilian Naturals in the same month.17\n\nCertification minimums interact with both models. A data brief of the Specialty Coffee Transaction Guide, built on FOB contract prices, notes that a mandated minimum does not oblige producers to price all certified coffee at the same floor.18 Fairtrade’s organic differential is added to the minimum or to the market reference price, whichever is higher.8\n\n## Quality and price links between coffees\n\nHow closely the prices of two coffees move together depends partly on how similar the coffees are. A 2018 peer-reviewed study tested long-run relationships between pairs of coffee prices. It found that coffees with chemical similarity have more similar prices, are more likely to keep a stable long-run relationship and return faster after a shock.16 In differential terms, a coffee close to the exchange’s basis quality should keep a steadier differential than one far from it; that is our reading, and the study did not measure FOB differentials.\n\n## Open questions\n\n- **Volatility of commercial differentials.** A 2017 textbook chapter describes differentials as usually less volatile than the futures price, but not always.1 The 2024 ICE filing describes commercial differentials as constantly subject to change, within and across crop years.5 No source opened for this entry gives a long, public series of FOB differentials by origin; the ICO group gaps are averages in consuming markets.15\n- **Differentials in a broad price spike.** The 2008/09 case concerned one origin’s short crop.15 How differentials of all origins respond when futures themselves spike was not measured in a study opened here.\n- **Buyer power.** The textbook calls the differential market mostly a buyer’s market1, but no study opened here measured how the negotiated differential is split between exporter and importer.\n\n## Key studies\n\n
\n

International Coffee Organization, 2010 – Annual Review 2008/09. The review reports coffee-year averages of the gaps between the ICO group indicators and between Colombian Milds and New York futures. It records the 2008/09 jump in the Colombian premium and attributes the fall in Colombian production to climatic problems and a tree rejuvenation programme.

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ICO Annual Review 2008/09 · ico.org

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Otero et al., 2018 – Coffee price differentials and chemical markers. The authors test which pairs of coffee prices keep stable long-run gaps. Coffees that are chemically similar have more similar prices and recover faster after a shock.

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Economic Modelling 72, 190–201 · doi:10.1016/j.econmod.2018.01.017

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Perez et al., 2017 – Economic sustainability: price, cost and value. Explains the forward contract as futures plus a negotiated differential, describes differentials as mostly steadier than futures, and shows what the 2008–09 Colombian spike meant for an exporter who had sold forward.

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In: Folmer (ed.), The Craft and Science of Coffee, Academic Press, ch. 6 · doi:10.1016/B978-0-12-803520-7.00006-2

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" }