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October 2010 Newsletter: 

Rising Coffee Prices


World coffee prices have been in the news lately, with dire
predictions of stratospheric increases as demand outstrips
supply. Roasters have increased their prices, cafes are pushing
up the costs of their drinks and my green prices have gone up a
bit. But only a little bit, and certainly not enough to justify
the publicity involved.

While there are many, many factors affecting coffee prices, the
two most important are first supply and demand, and second the
Coffee Futures Markets. The New York Board Of Trade (NYBOT)
handles mostly Arabica futures, and the London International
Financial Futures and Options Exchange (LIFFE) Robusta futures.

The supply and demand side of things is easy, if there is more
green coffee available than is consumed, prices tend to stay
stable or fall, if there is a shortage, prices go up. This year,
to the best of my knowledge, there isn't an overall shortage of
green coffee, but some origins (Colombia in particular) are in
short supply. This means that if you're committed to supplying
Colombian coffee you wince every time you have to call your green
coffee broker, but if it's just a blend component you have other
options.

As long as the coffee crops in Brazil and Vietnam (No.1 Arabica
producer and No.1 Robusta producer, respectively) are OK there
are unlikely to be serious shortages.

The Futures Markets, on the other hand, can be less linked to
actual events. Apart from being subject to the usual spectrum of
rumour, innuendo and outright falsehood that generates most
ordinary stock market turnover, Futures Contracts are at best
gambling on outcomes that haven't yet happened. And every now and
then a player or players will decide to try to tilt the odds in
their favour. This is especially true when there is a lot of
money sloshing around, and a lack of immediately profitable scams
(like dodgy mortgage packages) to invest it in. Like right now,
come to think of it.

So yes, green coffee prices have risen a bit, but not all that
much in dollar terms. To some degree it depends on which end of
the market you're buying at. If you are paying $4.00/kg for green
(large commercial roasters) and the price goes up by a dollar,
it's a disaster. If you're paying closer to $20.00/kg for some of
your coffees (like me) a dollar increase is no big deal. What is
important is being able to get these coffees at all, at any
price.

Of course the effect in the cup is vastly diluted as well, which
makes interesting reading when people complain about the price of
their latte going up. The actual increase in wholesale cost-per-
cup is about 2 cents. However, this gives every Café owner in the
land an excuse to put up prices to compensate for all the
increased costs of rent, energy, labour and other overheads
they've been ignoring for the last few years.

We do things a bit differently. Having been computerized since
day one, we constantly update our costs and adjust our prices
accordingly, a few percent every couple of years instead of huge
jumps. "Special" coffees tend to be different, their rarity makes
them expensive, and they don't get much rarer than this month's
special!

Nepal Terai Supreme
$48.00/kg

This is a stunning coffee, sweet and smooth with a hint of exotic
spice (cardamom?) in the aftertaste, and makes a distinctive
single origin espresso.

Until next month

Alan