Differentials

Definitions: basis, differential and basis risk#

The 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

The 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

A 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

Reference values: exchange differentials, as of October 2026#

The 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.

Published differential levels#

Commercial 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.

Other 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

Tight markets, short crops and price spikes#

A 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

The 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

A 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

Differentials 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).

Specialty coffee and outright prices#

Some 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

Auctions 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

Certification 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

Quality and price links between coffees#

How 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.

Open questions#

• 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
• 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.
• 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.

Key studies#