Green Coffee Market
Over the past year green coffee prices have been reaching highs not seen in well over a decade. Because the stock market and commodities are something that many people may not fully understand and because of the fact that this upward trend shows little sign of stopping or slowing, we chose to create a page that you could visit. On this page, you will find information on what the green coffee market is doing, how it is affecting us and, more importantly, you - our customer.
The price of green coffee beans fluctuates because of many different factors. As a crop, it is affected by good weather (which leads to larger than expected coffee crops) and bad weather (smaller than expected crops). As a consumable, it is also influenced by supply and demand from the end users. While we have seen the weather play a part in increased prices over the last few years, this does not account for most of the volatility. The increasing coffee prices has been caused by speculators buying coffee futures contracts they have no intention of ever taking delivery of. This may sound confusing to you, as it was at first to many of us at Gourmet Coffee Specialists, but it is actually fairly simple.
While coffee is not actually a commodity (it is fresh produce whose value is directly affected by how long it is stored), it is traded in a similar manner to true commodities. Coffee is sold in what is called a "futures contract". A futures contract is a financial contract obligating the buyer to purchase (and the seller to sell) a commodity at on a certain date at a predetermined price. Each commodity has different quantities that make up the contract as well as different dates that the buyers are expected to take possession of the product on. In the case of coffee, a futures contract is made up of 37,500 pounds of green coffee beans and there are 5 delivery dates each year - March, May, July, September and December. So when a futures contract is bought for a specific delivery date, the owner of that contract has to either take possession of the product, sell the contract outright or switch the contract with a contract further in the future.
A switch is what the speculators are doing to drive up the prices and make themselves a tidy profit in the process. For example, say a speculator bought a contract for March delivery several months ago for $2.00 per pound USD. Because of several factors (e.g. the actual crop size and quality, speculation on how the next crop will turn out, supply and demand concerns etc.), the price has increased to $2.15 per pound USD for those just wishing to enter the market. The speculator sells their contract to someone looking to buy and immediately buys one for a future month (any month). The speculator has made 15¢ per pound USD (remembering that a contract is 37,500 pounds so the profit made by the speculator is $5625, not including any fees they have paid for their trade) and is hoping that the future contracts continue to go up from the current $2.20 per pound USD price and they will be able to repeat the process. The roasters, and us, are hoping that some of the outside factors that the speculators cannot control, like a bumper crop, will come to pass and create a situation where there are lots of contracts available to be purchased from people other than speculators.
We have spent a lot of time talking about the green coffee market. We would like to note that while this has been the driving factor in the last 2 years, this is only part of the equation. In the past, coffee price increases have been dictated more by the costs of producing the final product than the green coffee market. These are things like increasing transportation and packaging costs, which is tied closely to rising oil prices, as well as general human resources cost increases. These factors continue to play a part in the current coffee prices as they continue to rise as well.
Our goal is always to offer you outstanding products at a great value. Please be assured that we are doing everything we can to try and stabilize our position. You can always contact us so we can directly respond to your questions and concerns. Please feel free to leave your comments and questions below and we will respond to you.
Share and Enjoy
