INDUSTRY NEWS/BACKGROUND INFORMATION

John Henshell internal communications sample: industry news and explanation, technical communication

GREEN BEAN BUYING IN TRYING TIMES

Understanding the current green coffee market requires some knowledge of the factors that allow coffee growers, brokers, and sellers to command specific prices.

According to Tea & Coffee Trade Journal, the New York Coffee Sugar & Cocoa Exchange (NYCS&CE, or just CSCE) was established more than 100 years ago to guard against wild speculation. Contracts representing coffee for future delivery are traded at the exchange. The contract that represents medium-quality arabica coffee is called the “C” contract. Each contract represents 37,500 pounds of coffee.

At the beginning of 1994, the “C” contract was valued at $27,750. That increased to $40,875 by May 10, and peaked at $102,750 a month ago. Thus, the “C” contract grew from $.74 per pound to $2.74 per pound. It dropped to $2.09 per pound last week.

Iced Coffee?

The “C” contract surged to $1.45, then weekend frosts in Brazil in late June and early July caused even greater price increases, but when temperatures didn’t drop below freezing for a third weekend, as predicted, the value of the “C” contract decreased in late July. The Tuesday, July 26 Wall Street Journal observes, “Most analysts say they don’t expect coffee futures prices to fall much below $2.00 a pound, even though Brazilian forecasts are now calling for warmer weather.” This is due to the already short supply of premium coffee.

We will know how much of the Brazilian coffee crop was damaged or ruined when the coffee trees do or don’t blossom in September.

Exchange Dynamics

The value of the “C” contract is not the figure Boyds pays for green coffee. Boyds negotiates contracts with a variety of suppliers for specific coffees. However, the value of the “C” contract (for medium-quality coffee) establishes the base for what our suppliers can expect for the premium-quality coffees we buy. Danny Raymond monitors the market constantly to be able to negotiate purchasing contracts that are fair to both parties. Paying a fair price enables Boyds to continue relationships with the suppliers that can deliver the premium green coffees we demand. Tea & Coffee Trade Journal reports that the “premiums” (amounts above the “C” contract price) paid by specialty coffee roasters for better beans are widening. The Journal speculates that small roasters, especially independent retailers that roast their own beans and “micro roasters,” will suffer in this market. If those shops are unable to acquire the beans they need, they may be willing to purchase roasted coffee from Boyds to stay in business.

Speculators are compounding the volatile market. Danny has figured that with the excessive buying and selling by investors, a bag of coffee is traded an average of 14 times before the cherries are even harvested.

Value

Boyds Direct Sales prices increased three times for a total of $.90 per pound. This represents a modest increase relative to the increase in green coffee prices, which is just one of the factors in our pricing. With a yield of 60 cups per pound, our prices have only increased by 1.5 cents per cup. Herb Baughman reports that many foodservice accounts are increasing their prices by 10 or 25 cents per cup. Due to the extensive national media coverage of the coffee market conditions, and increased prices for supermarket coffee, restaurant patrons will not be surprised if their cup of coffee costs an extra dime or quarter.

The publisher of Fresh Cup wrote, “Plenty of good coffee will still be available in the future, but at higher prices.” He quoted Danny as saying, “The consumer interest in good coffee will insure that good beans will be available, but the consumer will pay more for the privilege of drinking better.”

Tea & Coffee Trade Journal asserts, “Even after the price increases are finished, toward summer’s end, coffee will still be the most economical beverage Americans drink at home.”

Espresso and gourmet and flavored coffees are increasing in popularity so rapidly that price increases will not slow growth. Fresh Cup estimates that specialty coffee sales are growing by 12 to 15 percent a year. The most recent National Coffee Association of America survey found that 125 million Americans drink coffee. Those people consume an average of almost two cups per day.

These statistics and the boom in specialty coffee stores and espresso bars indicate that Americans perceive value in good coffee. People are willing to pay more for better coffee, but the best news is that they don’t have to pay much more.