Coffee Market Shuffle March 25 2014
The coffee market is currently going through another period of adjustment. The coffee market has went up dramatically since the beginning of the year and there's currently no end in sight. For those not familiar with the market, coffee is traded on the New York Board of Trade as a commodity. Just like oil, pork bellies and orange juice, coffee futures are traded everyday and the price of green coffee goes up and down depending on the condition of the market. For instance, if forecasters predict a shortage of coffee in the near future, the markets rise. If there's a bumper crop, the opposite generally happens. So they say at least.
If you put gas in your car at least once a week, you know exactly what I mean. In my area, gas prices are around $3.20 per gallon as of today. Three days ago, the same gas at the same location was around 3.12 per gallon. What changed in between those days? Most of the time it's absolutely nothing. No oil refinery explosions or shortages have been reported yet a few cent increase occurred. A few cents may sound petty, but when you consider how many gallons are pumped into vehicles on a daily basis, that's an awful lot of pennies. Speculation, which is what us southerners call guessing plays a lot into it. Some folks guess there will be a shortage or a surplus and investors get to shuffling money one way or another. Hedging is another reason. During our most recent recession, coffees prices shot up almost two-fold. Was there a shortage? Nope. Commodities like coffee, oil etc were safe havens for cash while the markets were in a free fall. Consumers might put off buying more appliances or a new vehicle for another year until the market settles, but we couldn't go without fuel for our homes or cars. So while more capital was being shuffled to those safe havens, the valuation increased sending coffee prices surging. No shortage, just the free markets working.
Investors were celebrating at that time, while coffee roasters like us were pulling our hair out trying figure out our next move while our costs to produce in most cases were doubling. Unlike gasoline, which changes prices hourly at times, coffee consumers understandably expect stability. However things are different this time around. There's been an extended dry season in Brazil this year & with them being one of the largest coffee producers globally, forecasters are worried production output. I obviously don't like when there's a cost increase, but I'm lot more tolerant when I at least have an idea why.
In conclusion, our plan is to hold steady while this gets sorted out. Just wanted to give y'all insight to one of the many things that float in your neighborhood coffee roaster's head continuously. In the mean time remember you enjoy one of the most affordable luxuries known to man. Treat it that way. Be blessed.