Brendan Keane
Forward contracts were once reserved for the coffee industry's commercial mammoths. The hedging mechanics, the terms, the brokerage accounts: all of it was a barrier to entry that only the big trade houses had the capital and know-how to clear. Today a forward contract is a tool most importers offer to any size roaster, and it is one of the simplest ways to take control of your business's coffee needs instead of buying everything "spot" (whatever is in the warehouse today, at today's price).
Before we get into why you should consider locking down coffee you know you will need, let's go over the basic components of a green coffee contract, in the scope of what Balzac Brothers offers. (I promise to keep this as interesting as I can without getting stuck in the legal jargon forest of boredom.)
What is in a green coffee forward contract?
- The buyer: that's you.
- The seller: your importer (I hope you choose Balzac).
- Quality and grade: this can be as generic as a country of origin and a standard grade (Strictly Hard Bean, for example) or as specific as a farm name and processing type.
- Quantity: how many bags.
- Price: how much is this Geisha, anaerobic, carbonic maceration, co-ferment nano lot going to cost? (Kidding, mostly. Your Colombia Washed Excelso will be a simpler conversation.) Most of our contracts are written at a final price per pound: one number, set when you sign. The C-market (the futures price for arabica traded in New York) is still inside that number, but you don't have to manage it. One futures contract covers 37,500 pounds, far more than most roasters buy at once, so we pool many smaller orders into a single block and price them against the market together. Larger buyers who want to handle the market side themselves can still contract on a differential (a set amount above or below the C-market) and fix the price later.
- Delivery terms: the date you plan to have taken the entire contract by, plus details like who pays for load-out.
- Storage clause: when storage starts and what it costs. At Balzac Brothers, at the time of writing, it is 3 cents per pound per month, starting from your contract's C-market month and added to the price of each release. More on this below.
- Final delivery period: the outer limit for taking the whole contract. At Balzac Brothers that is 18 months from the date the coffee first lands in our warehouse. If bags are still unreleased when that period matures, the remainder ships to you as one consolidated order, with any accrued storage invoiced. Most roasters finish a contract in 3 to 9 months, so this is a backstop, not a target.
Put those components together and you have a contract that drives a very beneficial agreement between you and your importer. The importer is bound to provide the coffee at the contracted quality and to guarantee your price and availability: no other roaster can jump in and buy the coffee you have contracted. In return, you as the buyer are obligated to take the coffee within the agreed delivery period under the terms of the contract.
Two things to know before you contract
Before we jump into a real-world scenario, there are two things you should generally know before coming to the table with your importer.
- Know your run rate. Put simply, this is how fast and how much of a given coffee you are using. Are you going through 3 bags a month? Half a bag a month? Look at a decent range of your history, accounting for the maximum and minimum you were using. Factor in your commitments to your customers and their demands too, especially if a key customer has really bought into the coffee in question, and review how long your current obligations to that customer run. This should drive the arithmetic for how much to contract and how long your coverage needs to be.
- Know the price you can sell at. It may seem obvious, but the price you can move the coffee at with your customers determines whether contracting it at the current final price makes sense.
Let the Partner Portal do the math
The Planning section of the Balzac Partner Portal (login required) works out your run rate from your actual delivery history with us. There are two ways in.
Quick Plan is the place to start. Three short questions about one coffee: how far ahead you want to be covered, which stretch of your history to plan from, and whether you expect to use more or less. It then shows how many bags to contract to stay covered. Nothing is ordered or committed. When the number looks right, the Talk to your rep button sends your plan to your Balzac rep, who takes it from there.
Quick Plan, step 2. Illustrative numbers.
Full Plan shows the whole picture. Every origin you buy from us on one page, biggest gap first, with settings for the usage window, how far ahead to look and a growth rate. You can also add coffee you buy elsewhere or demand you know is coming, so the plan covers your entire green coffee needs schedule.
Full Plan: what to contract, origin by origin, biggest gap first. Same illustrative account.
Your rep turns the plan into a contract. The planning tools give you an informed jump start. Your green coffee representative brings their specialized industry experience to advise you on next steps. They'll look at your plan, tell you what they see, and help shape it into something you can act on: when to contract and when to wait, how to schedule your releases to keep storage low, and where you can save, whether that's a different lot at a better price, a coffee arriving sooner, or splitting your coverage across two origins. Until you sign, your rep can rework the plan with you as often as you need. Once it's right, your rep writes the contract, and its terms are set. The tools start the conversation, and your rep finishes it.
A real-world example
You have an established single origin, let's say a Colombia Washed Excelso, that your customer base buys regularly every season. You are pleasantly surprised at how wildly successful this coffee is, and you know your run rate. You also know the price from your importer fits the profile you need to make your margin. In other words, if you can buy this coffee at $5.00 a pound, you make the necessary margin with your existing customers, and even better with the growth you expect.
Your risks without a contract
- The coffee could sell out right now. Specialty coffee is limited by nature, and your importer can only secure a fixed amount each season. To be candid, if your importer has a buyer willing to pay a good price for that origin today, they are going to sell it today.
- The price will move with the C-market. What costs $5.00 today could be $6.00 next week if the futures market moves up, or if replacement conditions change (what it costs to replace your coffee from origin). Say you have a customer who agreed to keep buying your roasted Colombia at $12.00 a pound based on the $5.00 green price you were paying. If the market jumps to $6.00 a pound, your margin is on the chopping block, with no avenue to protect it except lowering your quality or price by substituting another coffee. No specialty roaster likes the race to the bottom, and let's be honest, plenty of your competitors are happy to step in when you can no longer meet the price your customers signed up for.
- Cash flow. If you know how much coffee you need for the coming months (and you are planning correctly), your only option without a contract is to take delivery of all 50 bags at once and stomach that invoice. For most roasters that is unrealistic, so they simply accept the risks above instead.
I'm sure you can see where this is going. Let's talk about what a contract affords you against the risks we just established.
What you control with a contract
- Quantity. Balzac Brothers can't sell the coffee you contracted to somebody else, even if someone is willing to pay more. Those 50 bags are yours, so volume is completely locked in. It can't sell out if you contracted what you need.
- Price. The price is set in stone once the contract executes. If you contract at $5.00 a pound and the market jumps a dollar a few weeks later, Balzac Brothers is obligated to deliver your coffee at $5.00. If you know $5.00 works for your customers, you are in the driver's seat on price.
- Cash flow. Balzac Brothers lets you contract your entire need for a season at once (say, 50 bags) and then take the coffee as you need it: 10 bags this month, 10 the next, and so on. You are only invoiced for the coffee you take delivery of each time, so you protect your cash flow and can project exactly what your costs will be each month.
What does storage actually cost?
Every forward contract is tied to a C-market month, the futures month the coffee was priced against, and your contract will show it (December 2026, for example). Storage starts on the date noted on your contract, typically the first day of that month. At Balzac Brothers, at the time of writing, it is 3 cents per pound per month, added to your contracted price on each release. So if you contracted at $5.00 per pound against December 2026, bags you pull in December invoice at $5.03, bags you pull in January at $5.06, and so on. Bags you take before December are invoiced at the flat $5.00.
That charge covers the two costs an importer takes on while your coffee sits in the warehouse: storing it and financing it. Combined, the trade calls this "carry." It is a fraction of what the same coffee can move with the market in a bad month, and you can see exactly what it will be before you sign.
How quality is locked in
Here is the part that surprises roasters who have only bought spot: with a forward contract, quality is settled before the price is. There are two ways that happens.
Contracting on an arrival sample (most contracts). The coffee is already in our partner warehouse. You cup a sample of the actual lot, approve it, and the contract is written against that cup. Because you approved the coffee that is physically sitting in the warehouse, the quality question is answered on day one. What you get released in month four is the same coffee you cupped, rested a little longer.
Contracting before the coffee lands (pre-shipment). When we pre-purchase a coffee from origin, the contract is written Subject to Approval Sample, which you will sometimes see shortened to SAS NANS: no approval, no sale. You get the pre-shipment or arrival sample, you cup it, and the contract only goes firm when you approve. If the sample misses, either side can void the contract with no hard feelings. One thing to know: your price locks when you approve the sample, not before. Until you have committed to the coffee, we can't lock in the market on your behalf, so a market move between signing and approval is still a risk you carry.
Either way, once you have approved the cup, the contract is firm on quality and on price. That is the point: you never commit to a coffee you have not tasted.
The hard questions
The less exciting part of contracts, and the part worth understanding before you lock a coffee down.
The market went down and my contracted coffee is now cheaper spot. Can I cancel?
The short answer is no. The contract enforces the price obligation on both sides. If Balzac sold you the coffee at $5.00 a pound and the market drops to $4.00, you are still obligated to take it at the agreed price, just as we are obligated to deliver at $5.00 when the market goes to $6.00. It is a two-way street: forward contracts are symmetrical price protection. That is why it is so important to establish the price you know works for you and your customers. Balzac advocates for contracting conservatively and only when it makes sense. It doesn't help us if you get stuck with a coffee you can't use; that damages both parties.
I no longer have the demand I planned for. Can I cancel then?
No. Balzac locked in that coffee based on our agreement and almost certainly turned other interested roasters away because of it. We have also been paying to store and finance it the whole time it sat set aside for you. The coffee is guaranteed to you, and we can't deliver it to someone else.
What if business slows and I need more time?
Talk to your rep before the delivery period runs out. There is usually room to adjust timing within the contract, but we need to hear from you, not silence. The one thing that doesn't move is the price.
Does storage ever get expensive?
Only if you let a contract sit. At today's 3 cents a pound a month, 50 bags (about 7,500 pounds) held a full six months past the contract month comes to roughly $1,350 in total, spread across your releases. The run-rate work up top is what keeps this small: contract what you will use within the delivery period and the storage line stays a rounding error.
Pulled steadily, storage on the whole contract is a few hundred dollars. Illustrative numbers.
Is there any situation where I should not forward contract?
Absolutely, and don't let anyone give you an absolute answer. If you are just starting out, or demand from your customers is not yet certain, you may want to lean toward flexibility at the cost of controlling price and availability. Balzac Brothers prides itself on keeping a fantastic rotating stable of fresh spot coffees, so you will always have options no matter what you choose.
In summary
One more thing worth saying. People often look at a forward contract as a bet where somebody wins and somebody loses: if the market rises the roaster won, if it falls the importer did. That is the wrong lens. Done right, a contract is not a wager on the market, it is an agreement to take the market out of the relationship. The roaster gets a cost they can build a business on and a rep who knows their plan as well as they do, the importer gets a commitment it can plan its buying around, and the producer at the other end gets a confirmed home for the coffee. When all three can plan, all three do better. A rising tide lifts all boats.
Forward contracts are an incredibly valuable tool that you, as a roaster, can benefit from almost immediately. Put yourself in the driver's seat. Control your price, availability and quality. Taking the market's complexity and risk off your plate lets you focus on the things that matter more: your customers, your quality and the success of your business.
Related: browse our current green coffee offerings, request samples of anything you are thinking about contracting, read how working with us works, or catch up on freight and receiving in Logistics.