# Coffee price crash



## Fevmeister (Oct 21, 2013)

Futures markets dictate the global value of commodities and have recently fallen dramatically, both soft (perishables) and hard (metals) have been affected.

The most notable fall has been oil, which I'm sure many of you are aware of but I'm wondering whether any of you have noticed the coffee future and therefore the price of coffee supply has fallen by around 50% over the last 12 months?

Many see this as the end of the commodity supercycle which began in 2000.

Cheaper coffee for everyone?


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## The Systemic Kid (Nov 23, 2012)

That is not good news. Most coffee producers are at subsistence levels.

Cheaper coffee does not mean good quality coffee.


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## Mrboots2u (May 10, 2013)

This is not good , farmers will suffer and go out of business or move to avenues that provide a sustainable living , supply and quality will shrink as a result . Prices go up , does quality come back ?

Cycle starts again


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## froggystyle (Oct 30, 2013)

Would rather pay a little more to ensure farmers are getting a good deal, and the quality remains!

Less money and any farmers that can afford to stay in business will just cut corners where possible, not good!


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## The Systemic Kid (Nov 23, 2012)

Vast bulk of coffee commodity traded is at the mercy of big international companies like Nestle who aren't interested in quality. They want to drive down the cost as much as possible to maximise profit at the expense of the farmers. Look what is happening in Vietnam.


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## jeebsy (May 5, 2013)

I don't drink commodity coffee


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## The Systemic Kid (Nov 23, 2012)

You say commidity I say commodity


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## robashton (May 9, 2015)

jeebsy said:


> I don't drink commidity coffee


I don't think any of us do


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## Fevmeister (Oct 21, 2013)

It does make you wonder how the smaller regional/local suppliers that hasbean and the like are supplied by are affected by recent happenings


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## The Systemic Kid (Nov 23, 2012)

Speciality market is always going to be small in comparison to the vast quantity lower grade coffee traded. Roasters like HasBean and many others are dealing direct with growers forging relationships to encourage growers to go the extra mile for quality and be rewarded for so doing.


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## Mrboots2u (May 10, 2013)

Hey if your robusta blend of choice is now £3. People will be dancing in the streets ( not farmers tho ) .

As as been pointed out before when debates on price circle every couple of months. Some people arent concerned about what happens I'm the chain before they have to pay .


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## Jon (Dec 3, 2010)

Mrboots2u said:


> Some people arent concerned about what happens I'm the chain before they have to pay .


Probably 'most' rather than 'some' sadly.


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## garydyke1 (Mar 9, 2011)

robashton said:


> I don't think any of us do


Some on this forum are actively buying and using commodity grade coffee , even if they think they are not


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## jeebsy (May 5, 2013)

garydyke1 said:


> Some on this forum are actively buying and using commodity grade coffee , even if they think they are not


 And some people seem quite happy to to save a few pence per drink


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## robashton (May 9, 2015)

garydyke1 said:


> Some on this forum are actively buying and using commodity grade coffee , even if they think they are not


I was being snarky about the typo, because it's 10am and that's what I do


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## jeebsy (May 5, 2013)

robashton said:


> I was being snarky about the typo, because it's 10am and that's what I do


Don't play that game, it gets nasty. I didn't make a typo anyway, you must have doctored my post...


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## Fevmeister (Oct 21, 2013)

The Systemic Kid said:


> Speciality market is always going to be small in comparison to the vast quantity lower grade coffee traded. Roasters like HasBean and many others are dealing direct with growers forging relationships to encourage growers to go the extra mile for quality and be rewarded for so doing.


I agree and hope most of the family run estates are unaffected by this.

If you're a company like hasbean do you point them towards a recent price fall to negotiate a better deal for yourself? save costs at company level whilst customers still happy to pay current prices, very simple example of margin extension


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## robashton (May 9, 2015)

It'll just be like wine, plenty of cheap plonk in the supermarkets and plenty of good stuff available at source for reasonable price and at home for a lot more money.

I'll always be happy to pay more for better goods, so would a lot of people. Different consumers innit.


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## jeebsy (May 5, 2013)

Fevmeister said:


> I agree and hope most of the family run estates are unaffected by this.
> 
> If you're a company like hasbean do you point them towards a recent price fall to negotiate a better deal for yourself? save costs at company level whilst customers still happy to pay current prices, very simple example of margin extension


Although you want to negotiate a good price for your business, the direct trade model and generally more ethical stance taken by a lot of speciality coffee companies might mean they were more inclined to check that in such times the farmer was getting enough to cover costs and make a decent living rather than trying to knock more off (or maybe i'm being idealistic and naive)


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## Jumbo Ratty (Jan 12, 2015)

Petrol prices go up, petrol prices go down. I still have to pay and the petrol is the same.

Cant see why it should be any different for coffee than it is for milk or cod.

As a consumer I obviously like getting whichever goods I buy for the best possible price.


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## The Systemic Kid (Nov 23, 2012)

Percentage of global coffee revenues going to exporting nations has fallen from 40% to 13% while the price paid to farmers has fallen around 80% making it, for many farmers, not worthwhile to grow coffee.


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## The Systemic Kid (Nov 23, 2012)

Jumbo Ratty said:


> Petrol prices go up, petrol prices go down. I still have to pay and the petrol is the same.
> 
> Cant see why it should be any different for coffee than it is for milk or cod.
> 
> As a consumer I obviously like getting whichever goods I buy for the best possible price.


Even at the price of exploitation?


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## The Systemic Kid (Nov 23, 2012)

jeebsy said:


> Although you want to negotiate a good price for your business, the direct trade model and generally more ethical stance taken by a lot of speciality coffee companies might mean they were more inclined to check that in such times the farmer was getting enough to cover costs and make a decent living rather than trying to knock more off (or maybe i'm being idealistic and naive)


Dealing direct with farmers - building relationships with them has got to be a win win situation.


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## aaronb (Nov 16, 2012)

Speciality coffee prices wont go down if the commodity market goes down, even at speciality level a lot of farmers are barely making a living. The market is small and quality focussed, so people will continue to pay. If anything prices are going to go up.

I doubt consumer commodity prices will go down by much either, even if the C prices goes down further. Nestle would rather have increased products than pass massive savings onto the end consumer. Maybe a slight price decrease for marketing purposes.


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## Neill (Jun 26, 2013)

garydyke1 said:


> Some on this forum are actively buying and using commodity grade coffee , even if they think they are not


Go on then, name and shame


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## Jumbo Ratty (Jan 12, 2015)

Jumbo Ratty said:


> Petrol prices go up, petrol prices go down. I still have to pay and the petrol is the same.
> 
> Cant see why it should be any different for coffee than it is for milk or cod.
> 
> As a consumer I obviously like getting whichever goods I buy for the best possible price.





The Systemic Kid said:


> Even at the price of exploitation?


Not knowingly, no.

But then you can never be sure if you are wearing something made in China or India if the workforce have been exploited, or even your apple phone or I pad.

The cheapest coffee I have had cost £1.69 for 200grms, it bore the fairtrade logo, , go figure


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## Fevmeister (Oct 21, 2013)

I think you have macro economies ie the wholesale nescafe/probably even lavazza/starbucks/costa/douwe egberts etc will be benefitting from a lower unit price but within the microeconomies so smaller scale producers their prices will probably be pretty resistant to price falls due to fairtrade initiatives, better quality and method of production, better quality output, they directly set the price owing to their living costs which should remain constant rather than their wages being set by an employer.

There are no shortage of factors


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## garydyke1 (Mar 9, 2011)

Neill said:


> Go on then, name and shame


There are posts on this thread which should be pretty obvious


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## garydyke1 (Mar 9, 2011)

Jumbo Ratty said:


> The cheapest coffee I have had cost £1.69 for 200grms, it bore the fairtrade logo, , go figure


Fairtrade isn't fair. It also says nothing about the quality of the product


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## jeebsy (May 5, 2013)

http://www.theguardian.com/sustainable-business/direct-trading-coffee-farmers


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## 4085 (Nov 23, 2012)

This is all about the Options and Futures markets which is trading, rather than about the price at day to day auction. I probably have this wrong, but with a commodity a trader agrees to buy so much at a certain price in the future. he offset the risk on that trade by dealing in something else. He makes money if the price in the future is higher and loses money if it is lower.

But that is a different scene to coffee bought and sold via the world auctions to the end user


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## jeebsy (May 5, 2013)

dfk41 said:


> This is all about the Options and Futures markets which is trading, rather than about the price at day to day auction. I probably have this wrong, but with a commodity a trader agrees to buy so much at a certain price in the future. he offset the risk on that trade by dealing in something else. He makes money if the price in the future is higher and loses money if it is lower.
> 
> But that is a different scene to coffee bought and sold via the world auctions to the end user


See below!


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## Fevmeister (Oct 21, 2013)

dfk41 said:


> This is all about the Options and Futures markets which is trading, rather than about the price at day to day auction. I probably have this wrong, but with a commodity a trader agrees to buy so much at a certain price in the future. he offset the risk on that trade by dealing in something else. He makes money if the price in the future is higher and loses money if it is lower.
> 
> But that is a different scene to coffee bought and sold via the world auctions to the end user


Options are a different security, they are fully customisable and not used for setting the spot price of any asset.

Futures traded on LME/CME exchanges are used to set spot prices for all world commodities. The closing futures level is used as that days benchmark price.

The situation you refer to would be a hedged long future position, makes little sense to me to go long a futures contract and hedge away downside, and inherently, upside risk by buying another correlated asset. Usually the future itself is used as the hedging tool. For example if you run a low active share uk large cap equity fund, you can go short ftse100 futures to hedge away market risk.

I dont know how bulk coffee auctions operate but I assume they work in reference to a benchmark (futures) rate.


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## 4085 (Nov 23, 2012)

was a long time ago I sat the exams which covered commodities and trading....thank goodness!


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## Fevmeister (Oct 21, 2013)

im sitting CFA 2 in the next few months


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## 4085 (Nov 23, 2012)

Fevmeister said:


> im sitting CFA 2 in the next few months


you must like figures! I am an IFA, well, a restricted fa as of a month ago. I made the move to try and put a small brake on the meaningless waffle we are supposed to understand and carry around but never use!


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## bronc (Dec 10, 2012)

Fevmeister said:


> im sitting CFA 2 in the next few months


I sat for Level 2 in June. Expecting results next week


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## Fevmeister (Oct 21, 2013)

I think thats the way the industry is going, with rdr its becoming a bit too nightmarish for IFAs. Having the backing of a network/bank etc helps and takes away your compliance risk.

I guess if the products they offer are genuinly good enough quality and suitable for your clients its a win win


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## 4085 (Nov 23, 2012)

Fevmeister said:


> I think thats the way the industry is going, with rdr its becoming a bit too nightmarish for IFAs. Having the backing of a network/bank etc helps and takes away your compliance risk.
> 
> I guess if the products they offer are genuinly good enough quality and suitable for your clients its a win win


I am D/A.....not network or idiots sitting above me telling me what to do! The data I have to produce is just mind bogglingly stupid

anyway, back to coffee!


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