After hearing reports on the news about coffee rising 70c per cup, I thought I had better explain a few things.
The reason for all this talk is that the commodity futures price for coffee has spiked massively from $1.35/lb to $2.02/lb in the last 2 months.
What this actually means.
Most coffee is bought and sold on futures prices. Coffee futures is a commodity price on the NASDAQ and fluctuates like any share market. It can go up or down based on supply and demand. In 2011 we saw prices hit a record high price of over $3/lb due to some major factors. Firstly, Brazil had a low crop yield and they are the single largest producer of coffee. Secondly, two massive emerging markets started buying good coffee. Brazil and China simultaneously exploded introducing millions of consumers to the tasty beverage. Supply was low and demand was high. We, amongst many were forced to put our prices up to meet the almost $2/Kg raw cost increase. Which translates to less than 5c per cup.
The market is also massively influenced by speculation. At the moment, Brazil is having a very dry season. This has not yet affected production for the harvest starting in July. This speculation is forcing the prices up.
What will happen from here.
Firstly, coffee mills and producers will try and sell as much coffee as possible, while prices are high. Secondly, all coffee traders will try to buy as little coffee as possible until prices come back down. Currently we are half way through the coffee year so there is still a fair bit of coffee around, but everyone will be looking forward…. cautiously. This should see some balance return with supply outweighing demand.
From all the farmers I have talked to, a price of $1.50/lb is what they see as a good price for them. This does not mean that that is what they are paid, for example to our single biggest farmer, we pay C+.60 at farm gate, C being the current coffee commodity price. This is of course before milling and shipping. Every roaster in business in 2011 had to put their prices up, not all have put there prices down when the market drops back down to under $1.40/lb. If coffee roasters who were around in 2011 were not ready for this I’d be surprised. We were forced to look at how we buy coffee, come up with better systems and create stronger relationships. Let’s hope that the spike doesn’t go too high because sellers do silly things for money, and that we can see a return to a regular level that both the farmers and ourselves are happy with.
In the meantime, I guarantee that the only people making money off coffee commodities at the moment have nothing to do with the coffee industry.
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