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When you have your own web site, you sometimes have to resist an overwhelming urge to rant. Especially if you are selling products to people. You have to push your own politics aside, smile and nod a lot (in a cyber sort of way), and generally try to be pleasant and non-committal. And then something pushes you over the edge and you have to make a statement. That's what has happened to me. What I see as manipulation of the coffee commodity futures market has finally gotten to the point I couldn't suppress the rant any longer, so here it is!
Stick with me a moment while I throw some numbers out there and then we'll get back to the rant. Last Friday, when I finally boiled over, the Dow Jones Industrial Average was up. Good thing, too. But here's the news--it was up 1/3 of 1 percent for the entire year so far. Like decimals? Then it's 0.33%. You could do 10 times better with just an ordinary passbook savings account. Coffee commodity futures however were up a little over half since last March. Decimals again? OK, that's 50.0%. Here's where the person reading this (that's you) raises an eyebrow and says "Really? Why is that?" Well, I'm glad you asked. Here's where the person writing this (that's me) really gets rolling on his rant.
Coffee people are fond of bragging that coffee is second only to oil as the most traded commodity in the world. There are just two things wrong with that statement. The word commodity and the word traded. Treating coffee as a commodity means lumping low grade robusta and poorly grown and prepared arabica in with the kind of coffee you and I love--specialty grade arabica. Sort of like lumping boot leather and filet mignon together since they both come from cattle. Trading (which may be pretty much considered as a synonym for speculating or even just plain gambling) means wheeling-and-dealing and what happens with that low grade swill (found in grocery store cans or instant coffees) affects the price, and even the supply and availability of our beloved specialty grade coffee.
Commodity trading almost always means "futures" trading. The overly simplistic explanation is that someone can buy coffee today for delivery in, say, December. Supposedly he's informed about the crop conditions and demand expectations and such. So he offers a certain price for that future crop. Someone else can offer more. And someone else more than that. Finally someone has "bought" the crop for delivery in December. He in turn can sell it to someone else who will pay more or someone else who will pay more still. Anyway, you get the picture. And then someone looks at the price paid for that December crop and decides he wants part of the December crop so he offers a still higher price.
During all of that, no one has actually moved a single bean. It is all paper, or these days, electrons. Essentially, these "traders" are gambling that the price people are really willing to pay for that December coffee will go higher, or that before it falls they can sell their interests to someone at a profit and that other guy will get stuck holding the bag. The real problem comes in when the "money people" start bidding wars for that December crop--and they do it on purpose with the goal simply of driving the price higher so they can sell their "futures" for more than they paid. Come December, the roaster or green coffee merchant (the people who actually really do want the beans) have to pay the inflated, outrageous market price for the coffee which means costs and therefore prices must be higher.
Anyone with a 401k or a stock portfolio knows that when the stock market is performing poorly (did I mention 1/3 of 1 per cent?) people take their money out of the stock market and look for other places to invest. Unfortunately, the commodities market is a prime alternative. Remember the "speculators" who drove oil prices to over $150 a barrel? That same pack of wolves has discovered coffee and they are doing exactly the same thing. So coffee prices are going up and up for no good reason. The crops are mostly in good shape. The political climate is about as stable as it is likely to get considering that coffee mostly comes from unstable Third World countries. Consumption is steady to slightly rising. But the price is exploding. So what? Well, since it's my rant, I'm glad you asked.
This means to us that we have to pay higher, and in some cases MUCH higher, prices for the coffee we offer to you. While I might make 50 cents on a pound of coffee I sell to you, it is costing me 35 of those cents to replace it so I can have coffee available to sell next month. Next month it may cost me 40 of those cents. It's pretty basic that any business has to make a profit if it intends to stay in business. Most of us with a sense of fair play think that profit should be reasonable and that a merchant shouldn't gouge his customers (think of plywood sellers in South Florida with an approaching hurricane). In the coffee business we think so much of that idea that "Fair Trade" was instituted to insure the farmer was paid a fair "living wage" for his crop. We WANT him to make a profit, understanding it means we have to pay a little more for the coffee we buy from him.
If I thought that the dramatic rise in coffee price as benefiting the farmer, or the miller, or even the shippers and warehousemen along the route from the tree to you, I wouldn't feel so bad. Everyone in that chain has to make a living, and I believe they work hard for their pay. But I really don't think they are seeing any of that money. It is all paper profits in the hands of the speculators. Heaven forbid I should say anything against the "free market", but a system that allows such manipulation of the price of things seems to me to be anything but fair and free.
A couple of days ago I spoke to one of the importers who supplies us with coffee. He is scared. The people he sells coffee to, people who should be stockpiling coffee this time of year, are instead buying only what they have to have. The importers, however, contracted for the normal amounts of coffee last spring and now they are starting to get warehouses full of expensive coffee that is moving out slower than expected. Normally that would mean the importer would reduce the price to encourage sales, but right now, he can't--because if he does, he won't have enough money to buy the coffee to replace the coffee he just sold. Think of coffee supply from the tree to you like a huge conveyor belt that never stops. If anything blocks that movement, things back up quickly and pretty soon it starts to look like Lucy and Ethel in the candy factory. Vicious cycle--and one that nobody can predict how or when it will end, other than to say that if what is happening now follows historical patterns, someone is going to get stuck with the bill. And you can pretty well bet it won't be the "traders".
Well, even a good rant eventually has to wind down. What am I really so mad about? We are having to raise our prices for the reasons above, and we have to do so in a weak economy. Normally this economy wouldn't even begin to support price hikes and we'd be fools to consider it. But if we want to be here next year offering you the best coffee we can, then we have to charge a price today adequate to purchase that coffee tomorrow. And the speculation that is driving that coffee market price higher means we have to raise our prices. I don't want to. I've resisted it as long as I could. But one and one are still two (until the speculators get into it then one and one will be two point five!) and simple math means the price has to go up. We'll keep it as minimal as possible, but I had to rant a bit and tell you why. And now you know. I'd very much like to hear from you about all this. Send me a note at
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. Denny
*Note: I had nothing to do with his rant. Priscilla  |
