Coffee 'C' Market Prices


Published on

The state of the coffee market and factors influencing the recent dramatic increase of commodities prices. Written and presented by Andrew Hetzel of Cafemakers at St. Petersburg, Russia on 3/10/11 and the Swedish Barista Cup in Stockholm on 3/12/11.

Published in: Economy & Finance
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide
  • …come all of the way from the Island of Hawaii in the Pacific Ocean so you know that I want to be here! -Active in the coffee industry since 2000, coffee lover for lifeconsultant to coffee roasters / farms, buyer of approx. 3,000 tons of specialty grade coffee annuallyQ-grader, board of directors for the world barista championship
  • -Most turbulent market in my 10 years in the coffee industry-coffee traders with more than 30 years experience say that have never seen anything like this -low but relative stable and on the increase since 1997, most of our professional lifetimes
  • Until 2010, when prices began to climb.
  • -what the heck is going on?
  • Today, we will discuss-‘c’ market, what is it and how does it impact the cost of coffee?-what are factors that cause the c market to rise and fall?-what is happening to the ‘c’ market now?-how can we adjust or use market instability to our benefit?
  • -the volatility created by the demand for buying and selling causes the prices to rise and fall-high 335.63 US cents in April of 1977-low 41.50 December 2001-historically, the sharp increases have been peaks or brief spikes in prices causes by weather or other supply crises
  • -however, in the past year prices have more than doubled, steadily -no signs of decreasing-analysts are expecting green coffee prices to be at or greater than $3.00
  • -there are 3 primary forces that impact coffee prices-today, we are in what some analysts call “a perfect storm” of complications where all 3 are negatively impacting price
  • Issues affecting supply
  • -Brazil is (still) the world’s largest producer of coffee-Trees naturally have a bi-annual cycle of stronger and weaker production-every other year, crops are expected to be lower as Brazil does not yet take cultivation measures to counteract this (but is going to in future years)
  • -urbanization continues, with many young people moving to big cities in search of better opportunities, and away from farms-less labor is available to farm the land and pick coffee
  • -global climate change-creating droughts in Brazil, Africa-floods in Colombia-future production estimates lower in #2 Vietnam
  • Issues affecting demand
  • -coffee drinkers continue to drink coffee (no surprises)-demand from developed consumer markets of Europe, North America and Australasia has not ballooned as it did in the late 90’s and early 2000’s, but continues a steady gradual rise
  • -big increases in consumption are coming from emerging markets-huge population centers, specifically in China…. and
  • -Russia, where tea has traditionally been the nonalcoholic beverage of choice
  • -also in large coffee producing nations, like India-just 5 years ago, Nescafe was the only coffee that could be purchased in most coffee growing nations, as the best coffees were all exported for income-producers like India have been promoting coffee consumption by its own citizens as a way to reduce reliance on the outside world
  • -again, Brazil-Brazil has been highly successful at increasing internal consumption by double-digit % in the past 10 years-a government-sponsored school lunch program promotes coffee in public school lunches for children
  • -at the same time, the world is shifting from lower-quality coffees (typically Robusta) to higher quality ones-this causes shortages of better quality coffees worldwide while producers race to catch up
  • …and the third major component: financial speculation
  • -in 2009 the world financial crisis struck as institutional investors learned that many of their securities (stock, bonds) assets were not worth the value reported, many lost fortunes-as an interesting consequence of the stock market crash, real commodities (coffee and gold, for example) became more attractive investments
  • -you will notice the upswing in price begins as the world’s economy begins the first steps of recovery in mid-2010-shy investors who were damaged by stocks and money markets begin pouring money into goods of real value, tangible assets like commodities and real estate
  • -gold too was on a stead upswing since 2001 and shows a nearly identical jump in 2010
  • -under normal market conditions, world news like reports of frost or increased/decreased consumption cause small changes in the commodity price of coffee
  • -however, with all of the extra liquidity (cash) invested in the futures markets by speculators, these changes can become extreme
  • - But I’m a small specialty coffee roaster, how does all of this big business trading of commodity coffees impact me?
  • -many high quality specialty coffees trade at DIFFERENTIALS that add a premium for quality and/or desirable origin directly to the listed NY “C” price… for example, a good quality Brazilian coffee may trade at C + 25 cents. A good quality Guatemalan at C + 50… and so on.-Organic / fair trade coffees are often more than their conventional counterparts-coffees can trade at less than “c”-some markets or premium coffees ignore the C market completely (like Kona Hawaii, Jamaica, premium estates like Hacienda Esmeralda, Cup of Excellence coffee), but don’t be fooled, they are always impacted by world market prices-prices will be rising across the board as C markets increase
  • -buyers are scared by the new of shortages, so they are buying all of the stocks that they can find-even if not needed, they believe that excess coffees can be sold at premiums (also speculating that prices will rise)
  • -so what can be done to survive or thrive?-my suggestion is to act quickly – if you wait for prices to impact you before you make changes, it is already too late-set market conditions, do not react to market conditions-it’s time now to work with your producers and coordinate with your green coffee traders to plan ahead and contract coffees for the future
  • A better approach is to change your product line-eliminate unnecessary components in blends, clearly recognize components that add value, not just unnecessary complexity-search for comparable alternate origins of coffee supply-if producing mass production blends, you may find success attracting a broader spectrum of clientele by creating a high-end product line-high-end consumers are less sensitive to product changes and the introduction of a high-end product line may not be as noticeable as a price increase (nothing to compare historically) – starting with a clean slate at current prices (easier to enter high and lower prices than raise)
  • Coffee 'C' Market Prices

    1. 1.
    2. 2. Andrew Hetzel<br />Hawaii, U.S.A.<br />
    3. 3. We’ve seen unprecedented turbulence<br />
    4. 4. Prices are skyrocketing<br />
    5. 5. Today’s Price: 280.55<br />
    6. 6. What happened?<br />
    7. 7. Make the turbulence work for you<br />
    8. 8. Coffee is a commodity<br />
    9. 9.
    10. 10. Coffee prices double in 1 year<br />
    11. 11. Forces are pushing and pulling the market<br />
    12. 12. Supply<br />
    13. 13. Brazil has a bi-annual crop cycle<br />
    14. 14. Young workers are moving to cities<br />
    15. 15. Weather is affecting yield<br />
    16. 16. Demand<br />
    17. 17. Demand is steady in developed markets<br />
    18. 18. New markets are drinking coffee<br />
    19. 19.
    20. 20. …particularly coffee producers<br />
    21. 21.
    22. 22. Higher quality is in demand<br />
    23. 23. Speculation<br />
    24. 24. The financial crisis strikes<br />
    25. 25.
    26. 26.
    27. 27. Normal liquidity<br />
    28. 28. Liquidity today<br />
    29. 29. What does it all mean?<br />
    30. 30. Prices continue to rise<br />
    31. 31. Direct trade affected first<br />
    32. 32. Better coffee is harder to find<br />
    33. 33. Some producers are holding back stock<br />
    34. 34. Buyers are hoarding stocks too<br />
    35. 35. Credit limits affect supply<br />
    36. 36. How can you adjust to make it work for you?<br />
    37. 37. Change packaging<br />
    38. 38. Broaden product spectrum<br />
    39. 39. Don’t hide from the inevitable<br />
    40. 40. Is this a spike or a correction?<br />
    41. 41. Better coffee is worth more<br />
    42. 42. Proof is alwaysin the cupAndrew<br />