From the Wall Street Journal yesterday, Smuckers is cutting it’s packaged coffee prices another 6% in the wake of declining green coffee prices across the coffee belt. This is a good sign around this time of year as speculators are looking towards the harvest season and are projecting their outputs for the 2016 crop. Now mind you that this is the Parent Company that includes Folgers and Dunkin Donuts, so they have been seeing better than expected earnings in Q 4 2015 and Q 1 2016 and are in a great position to take advantage of declining green coffee prices based on the futures market.
“The coffee what market?” No, not where you buy coffee, but rather the speculative market that drives the price of coffee either up or down; much like the Oil prices. In case you don’t know, coffee is the # 2 traded commodity in the World behind oil. Without being too laborious, here is a brief explanation of how this works from Investopedia.com.
As a Coffee Roaster, these up and down turns are critical in obtaining green coffee and maintaining during an increase and being competitive when we see declining green coffee prices. You see, the larger companies such as Smuckers buy on futures, meaning if the price is good and trending, they will forecast and commit to a huge amount of coffee at a set price, while medium size roasters may only be able to commit to either what they can store or what they can financially obligate themselves to. This is never an immediate response either way as Smuckers announced a 6% decrease in July 2015 and another in May 2016 being careful not to hedge their bet too quickly.
What does this mean to you and how does it effect your cup of coffee? Well, the obvious answer is price depending on where you buy your coffee from. You see, things trickle down slowly so until the “mass populous” notices a change, not every coffee shop will be reflecting a reduction in price for one of a few reasons. Perhaps they “ate” the latest increase to stay competitive in their neighborhood, or perhaps, they need to use a few extra dollars in marketing and/or business operations. That’s why news like this is ambiguous to a certain degree. It’s bitter sweet and may change with a hurricane or drought over the Summer and early Fall.
As both Coffee Roaster and Coffee Farmer ( however not including Jamaica Blue Mountain Coffee – which is not dictated by the stock market ) there is one point that sticks out – the farmers get paid less. This is where being a part of a Fair Trade co-op or group will prevent that from happening as the prices are pre-negotiated and set for each crop season, so there is protection against the Farmer losing money. So regardless of declining green coffee prices and Fair Trade Certified coffee will cost the same no matter what the market dictates in a given year. This is worth the higher paid price all across the board since it is a system based largely on Coffee Farmers allocated an additional $.20 per pound of green coffee sold so that they are able to maintain a sustainable farming community.
Just a finishing thought; not all decreases are good, and not many understand the effects it may have on future production if a farmer cant maintain his fields. Then in two or three seasons, price goes back up due to supply being low.