![]() ![]() Price increases can occur during other stages of export, because of transport or shipping costs. When prices rise at origin, it doesn’t necessarily mean that the producer is getting more money. ![]() Prices can rise for a variety of reasons, but buying coffee at lower prices doesn’t have to mean lower prices for farmers. “You can find coffees that are good for you and do a lot of good for the farmer,” Kat explains. “This allowed us to bulk up our inventory before the pricing really skyrocketed.”īy keeping an eye on movements at origin, Al was able to foresee the price changes that would come for Sumatran coffee in the near future, and get out in front of them.įor cases like those we’re experiencing in 2022 (when coffee prices are on the rise in general), a little advance warning can make a big difference, and enable you to purchase enough stock to “ride out” a price spike. “So, when the internal market spiked and I heard that was happening, I snapped up all the spot and nearby FTO (Fair Trade and organic) lots that I could, especially from our producing partners. “Sumatra is our number-one origin we basically need to have it all the time,” he adds. He says: “Four years ago, the Sumatra market went crazy. Keeping an eye on the origin markets that are most important to your business can give you advance warning when markets are on the rise.Īl Liu is the Vice President of Coffee at Colectivo Coffee. Ultimately, this means that the options for small to medium-sized roasters to hedge price risk are different from those available for larger brands. “This is because a single stock of futures is sometimes their entire annual volume.” “Buying and selling futures for small to medium-sized roasters is not really feasible,” Kat explains. As such, this kind of investment isn’t something that many coffee roasters are able to make. However, a single stock of coffee futures is an entire container of coffee (roughly 17,010kg or 37,500lbs). Then, if the price of coffee on the market goes up, they can sell the stock they’ve purchased to offset the rising price.Ĭonversely, if the C market price goes down, they’ll take a hit on their futures stock, but will pay a lower cost for their coffee. Hedging is where large coffee roasters buy stocks on the futures market at the time they lock in their contract price. Price risk mitigation for coffee roastersįor larger roasters, market-based mechanisms like hedging are the most common ways to mitigate price risk. This encompasses a range of tactics that can help coffee roasters soften the impact of price changes. Finally, if a roaster signs a contract that doesn’t secure a specific market price (with the plan being to secure it later) and the price goes up, then they’re left with a contractual obligation to buy coffee at a higher price than they had expected.įor all of these scenarios and more, roasters can exercise something known as price risk mitigation.If the price goes down after a roaster secures a price, they’re left holding a more expensive contract than the current futures price. If a roaster “locks in” a price at a specific C market level, they can lose money if the market changes.Right now, since the market is so high, with little indication that it will fall significantly, most roasters have to pay high prices for coffee. If the C price goes up, roasters may have to pay higher prices for spot coffees (available to ship immediately from the warehouse) and future coffees (contracted for delivery at a later date). ![]() ![]() This change can affect roasters in three ways: Since the C market is driven by global supply and demand, the price of coffee can change significantly. While some roasters do buy coffee outright – at a fixed price determined between the roaster and the co-operative or producer – the vast majority of coffee is not bought outright, and is therefore tied to the C market. She says: “By our estimations, 96% of all coffees sold in North America are determined by the C market at some point.” Kat Nolte Ferguson is a Specialty Managing Trader for Sucafina North America. Usually, this is a direct correlation, as many roasters either pay the C market price or a differential (a specific number of cents above or below the C market price). Whatever way roasters buy coffee, it is a fact of life that their costs will be affected in some capacity by the C market. ![]()
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