January 2025 Newsletter (2)

Apologies for a couple of days shipping delay. Our roaster ran into a few post holiday restart problems, but everything is now working and we’re back to our usual shipping schedule.

There have been a few (fairly superficial) articles and TV news slots on how the increase in world coffee prices is going to result in the $10 Cafe Latte. The truth is that the only thing cheaper than the cost of roasted coffee in a cafe beverage is the cost of the takeaway cup. Raising the coffee price three times would still be covered by a 50 cent increase in the over-the-counter price. On the other hand, increasing the rent by a third would probably justify a $5.00 raise, so unless your favourite cafe has an extra greedy landlord, don’t panic.

So what is driving the increase in green coffee prices? First, coffee is an agricultural product and the amount produced in any given year can be quite variable. Unfortunately, the world’s two largest suppliers (Brazil and Vietnam) have both been hit by droughts and flooding rains respectively in the last year. As with oil, shortages lead to price increases.

Second, most of these increases don’t end up with the farmers. The “base” prices for coffees are set by two “Futures Markets”, the New York Board of Trade (NYBOT) for Arabica beans, usually abbreviated to the NY”C” price, and the London Commodity Exchange (LCE) for Robusta beans. As with all Futures Markets the prices are basically established by a sophisticated form of gambling and those with the most money usually make more. Prices may bear no relationship to the actual costs of production and transport. The majority of coffee futures traders have probably never seen an actual green coffee bean in their lives.

Third, green coffee is traded in US Dollars and the poor old Aussie dollar is a bit sick right now. A US$10.00/kg green coffee is an A$16.00/kg green coffee before shipping and Customs charges get it into a local warehouse, so at this time most of the pain is happening to green coffee importers and local roasters.

So for us, this year looks like “Hang onto your hats, it’s going to be a bumpy ride!”

Until next time,

Alan.