spot contract vs forward contract hedging currency risk in coffee trade

A cash-flow-first guide for coffee importers deciding when to buy USD spot versus locking a forward for invoices due in 30–120 days. Includes a worked 90-day example, deposit requirements, how to handle shipment delays, and matching forward maturities to FOB/CIF terms.

If you buy coffee in USD and sell in a different currency, you’ve felt the swing. A 1–2% move can erase your margin on a 40 ft container. We’ve watched small roasters and mid-sized importers save four to five figures per shipment just by tightening their spot vs forward decision. Here’s the cash-flow-first way to choose, with a simple 90-day example you can copy.

The one-minute answer: spot vs forward for a coffee invoice

Pay spot when you must fund now. For example, cash against documents this week with limited FX exposure window and strong cash buffers.
Lock a forward when the invoice is due in 30–120 days and you want certainty on landed cost. You preserve cash today and align the rate to your payable date.
Partial hedge when quantities may change. Cover 50–80% now, add top-ups when shipment and weights are confirmed.
Don’t buy USD early and sit on it unless your local interest rate is well below USD and you’re confident on dates. Holding FX ties up working capital and can backfire if shipments slip.

This is the rule of thumb we use with buyers booking allocations of Indonesian lots like Sumatra Lintong Green Coffee Beans (Lintong Grade 1) or Arabica Bali Kintamani Grade 1 Green Coffee Beans 30–90 days ahead.

What really drives total cost (and why forwards aren’t “extra fees”)

There are three levers that decide your all-in cost.

Pricing spread. The bank or broker’s spread on spot and on forwards. Push for an all-in forward quote, not just “points”. Compare providers. Bank vs FX broker spreads can differ by 5–15 basis points for SMEs in our experience.
Interest rate differential. Forward points reflect the cost-of-carry between currencies. If your local currency yields more than USD, forwards usually price USD slightly higher versus your currency. That isn’t a hidden margin. It’s interest math.
Cash carry and opportunity cost. If you buy USD spot today for a payment due in 90 days, you give up interest you could earn on your local currency for 90 days. That carry often outweighs the forward points you “save” by buying now.

Practical takeaway. Ask your provider for: spot rate, all-in forward rate, and any initial margin requirement. Then compare with your own cost of cash.

A worked 90-day example you can adapt

Scenario. You’re an importer booking a 40 ft container of Indonesian Arabica. Invoice USD 100,000. Payment in 90 days. Your local currency annual deposit rate is 8%. USD short-term yield sits around 5.5%.

Spot today: 5.0000 LCY per USD. Spot spread cost: 0.20%.
90-day forward points implied by rates: roughly +0.62% versus spot (because 8% > 5.5%). Forward spread: 0.15%.

Option A. Buy USD spot now and hold for 90 days.

Principal outlay today: 100,000 × 5.0000 = 500,000 LCY.
Spread cost today: 0.20% × 500,000 = 1,000 LCY.
Opportunity cost on cash for 90 days: 500,000 × (8% − 1% USD interest credit) × 90/360 ≈ 8,750 LCY.
All-in economic cost vs paying in 90 days: roughly 9,750 LCY.

Option B. Lock a 90-day forward.

No principal outlay today. Initial margin 5% of notional as an example: 25,000 LCY, refundable and much smaller than 500,000.
Forward rate markup: +0.62% points + 0.15% spread = 0.77% on 500,000 LCY notionally = 3,850 LCY, payable at settlement.
You keep 475,000 LCY working in your business for 90 days.

Result. The forward saves around 5,900 LCY in this case. That’s the pattern we’ve seen repeatedly when local rates are above USD and cash is precious. If your local rate were lower than USD, the gap narrows or flips, but forwards still protect you from an adverse move without tying up full cash.

How to align the forward maturity with coffee payment terms

FOB with TT at docs. Set the forward value date to the latest expected document presentation date plus a few buffer days. If your exporter issues documents 10–14 days after vessel departure from Belawan or Tanjung Priok, use your ETA and add 14–21 days.
CIF/CFR with net 30 after arrival. Set maturity to the expected payment due date on your commercial terms, not the sailing date.
Letter of Credit usance (e.g., 60 or 90 days). Match the forward to the usance tenor. You’ll pay on LC maturity after acceptance, so the forward should settle then.
Staggered invoices. Split into multiple forwards, each tied to a tranche. For example, 30% down payment now, 70% at docs for Sumatra Super Peaberry Green Coffee Beans. Hedge each leg separately to avoid overhedging.

Takeaway. Start with the date cash actually leaves your account. Build a 3–5 day buffer if your bank settles forwards T+2.

Common questions we get from buyers

Is a forward cheaper than buying USD now for a 90-day coffee invoice?

Often yes when your local currency interest rate is higher than USD. The forward includes carry, but you avoid tying up full cash for 90 days. The worked example above shows why. Run the same math with your rates and spreads. We recommend asking for both a spot and a forward quote at the same time.

How much cash do I need to post to book a forward for a coffee shipment?

It depends on your facility. With a bank credit line, initial margin can be 0%. With an FX broker, 3–10% of notional is common for SMEs. Variation margin may be requested if the market moves a lot. Plan liquidity for worst-case drawdowns. In our experience, 5% covers most 30–120 day coffee hedges.

What if my coffee shipment is delayed—can I roll or extend the forward?

Yes. You can do a date extension via an FX swap. You close the original forward at the prevailing market rate and open a new one for the new date. The net cost or credit equals the interest differential for the extra days plus spreads. Delays have been more common recently due to rerouting around the Red Sea and tight vessel schedules in Asia, so we recommend building a small time buffer and being ready to roll once dates are firm.

How do I match the forward maturity to FOB/CIF payment terms?

Use your payable trigger. For TT at documents, maturity should be around the earliest likely document presentation. For usance LCs, match the usance days. For CIF/CFR on open account, match the invoice due date. Add a few days of cushion, not weeks.

How do forward points affect the BRL/USD rate for coffee imports?

Forward points are driven by interest differentials. Because Brazil’s Selic rate has been higher than USD rates, USD/BRL forwards typically price at a premium to spot. That means buying USD forward costs more BRL per USD than spot today. But it preserves cash in BRL, which often earns a higher rate. The net effect is usually a wash or a small advantage to forwards after carry, not a penalty.

Can I hedge only part of the invoice if quantities might change?

Yes. We often see buyers hedge 50–70% when booking allocations of Bali Natural Green Coffee Beans or Java Preanger Grade 1 Green Coffee Beans. Then they top up with a smaller forward or a spot trade once final weights and shipment windows are confirmed. Partial hedging avoids overhedging if a container rolls or splits.

What’s the risk of buying USD now and holding it until payment?

Liquidity. You tie up 100% of the cash. Most roasters need that cash for green coffee deposits, packaging, or payroll.
Overhedging. If weights come in light or a shipment is canceled, you’re stuck with extra USD and an FX P&L swing.
Operational. USD accounts can incur fees. Reconciliation gets messy if you’re juggling multiple pre-bought blocks of USD.
Opportunity cost. If your local currency yields more than USD, you’re giving up that carry. The forward internalizes this math without locking your cash.

Playbook we use with quality-focused buyers

Lock your COGS early. When you pre-sell a seasonal single-origin like Sulawesi Toraja Green Coffee Beans (Sulawesi Toraja Grade 1) or Blue Batak Green Coffee Beans, match the forward to your payable date. It lets you quote prices confidently.
Hedge in tranches. Start with 60–80% when the PI is signed. Add the rest when the bill of lading is issued. This reduces the chance of rolls and keeps fees down.
Compare providers twice a year. Spreads and margin terms move. In the last six months, we’ve seen SMEs knock 5–10 bps off forward spreads by adding a specialist FX broker alongside their main bank.

If you want a quick second opinion on your numbers or help aligning hedge dates with ETAs, you can Contact us on whatsapp. We’re happy to sanity check a quote or timing plan before you commit.

Quick checklist before you book

Confirm payment trigger and date. FOB docs, CIF due date, or LC usance.
Ask for spot and all-in forward quotes side by side. Include any margin requirements.
Calculate carry. What’s your local cash yield versus USD for the tenor?
Decide on hedge size. Full or partial, based on allocation certainty.
Add a small buffer. 3–5 days beyond expected settlement reduces roll risk.

Locking your FX rate won’t make the coffee taste better. But it will make your landed cost predictable so you can focus on quality. If you’re planning purchases now, you can browse current origins and plan hedges alongside allocations. View our products.