Coffee 'C' Market Prices

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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.

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  • …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.
  • TO BE UPDATED ON THE DAY OF PRESENTATION
  • -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 Hetzelwww.cafemakers.com<br />

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