C Market Price

[Christopher Schooley]

[original title: Marky Market and the Funky Bunch]

The market is at 1.4275 at the moment. It has been some time since it was last around there. This is significant on many levels. Knowing that it is a fickle beast, what are your thoughts?

[trish]

book forward, son

[nick]

I'd say, it's time for every quality-focused coffee bar to raise prices across the board.

We've all been preaching, "More money for farmers." I certainly have. Though it's certainly not that simple, a little "be careful what you wish for" admonition may be in order. (the rising C is obviously much more about overall production of commercial than high-end specialty, but I'm just sayin')

We talk about "rising tides," but tides go up and down. What we really want is a whole new sea level... for the global icecaps to melt and raise the coffee-price oceans. That said, to continue the analogy, rising oceans will swallow up certain islands and result in global catastrophe, if the industry's economics aren't prepared.

We serve 93-scoring coffees brewed by-the-cup and charge $5.00 for a 12 ounce cup and we're pretty impressed with ourselves... in less time than we think, we won't have a choice. In just a little time after that, it'll take $10.00 a cup for a shop to stay profitable. Will the consumers be ready? What are we doing to prepare them? What are we doing to prepare ourselves?

All that said, I think it was PeterG who told me that based on his recent visits and overall production there, Indonesian coffee prices are gonna blow people's minds this year.

[trish]

Perhaps one place that needs illumination is, as nick notes, the price the farmer is getting for anything 90 and above. Is their margin anywhere near the roasters' or retailers' margins on these coffees?

C'mon! Fess up.

[Christopher Schooley]

Also, aside from the consumer there are a lot of roasters and shops that have opened up in recent years. Places that when they opened, the market was at its most abismal. What will their reactions be I wonder.

[coffeetaster]

Short answer: The market is way over bought. Too many longs. Too many specualtive funds playing the soft commodities, the market is all technical right now. No fundamental data in the market, there is no actual support from a product perspective.

Be aware of the heavy swithces taking place over the next few days as positions roll from Mar to May with first notice day for Mar 08 being Feb 21.

[Christopher Schooley]

Perspective; thanks Spencer. I do still feel though that it is significant (not necessarily a good/bad situation) that we are seeing higher prices even if it is not sustained at this current level. I also second Nick's old man and the sea analogies. Why isn't there a Smiley that expresses how I feel inside.

[trish]

the prices for specialty (or what Ken Davids likes to call "boutique") won't go down...ever...because the market has proven it can bear it like this. And many would argue it's not high enough. And demand is growing...But last night a friend of mine told me not to worry so much about it. In the grand scheme of things, it's just what he called "the fringe".

[coffeetaster]

Trish-

I agree. Boutique coffees, exotic coffees, super-premium - whatever you wish to call them are in some instances still under valued in the market. Remember that quality is defined by the buyer and not the seller, thus we need to value the coffee in reverse: from the consumer back towards the farmer.

There have been many great efforts to separate this coffee from the NY"C" contract to establish separate pricing, however all attempts at this have failed.

The few successful models are the online auctions like Cup of Excellence. However this is a special occasion event and an everyday practice. The "Q" program has of yet failed to reach the mainstream industry, as it is still not fully functional and user friendly for importers.

Thus we are back to allowing our glorious coffee to be valued by speculators and funds with no interest in coffee whatsoever, just the potential profits from the commodity market.

What to do? Develop your own relationships with farmers and cooperatives and negotiate a fair price related to what the coffee is really worth.

[Tim Dominick]

I was with a longtime trader last week who said the C would crack $1.50 by the end of the month and he speculated it wouldn't spend much time above that figure before leveling off in the 130's. Mostly driven by speculators and non-coffee people looking for refuge from a shitty stock market.

Monday as the market cracked 140 I was in the office of an exporter who was getting calls from farmers to fix for December delivery. He is concerend that if the market heads towards 200 there will be a sudden "lack" of coffee that was contracted at 140. He went on to say the market for the best coffees isn't really affected by a c between 100-250.

The other interesting point made by both people I talked with about the C is this: The C might be up over $1.40 but the dollar is waaaay down, meaning that a farmer who sold at $1.25 last year is getting less in their own currency at $1.40 in 2008.

Then we took a trip to a well-known CoE awarded farm that, as all farms do, had a pile of moldy DP waiting for internal consumption. We asked the value, and it is being sold for $107 per 100 pounds. Nothing to do with the C or the status of the farm, but everything to do with limited supply in a growing market.

Just hope you don't get caught on the margin call....pennies a pound add up to thousands a box as one wiley old coffee buyer told me.

[Bob Arceneaux]

I'm glad I've got a good bit of green under contract, but krikey.
Anyone want to talk about this today?

[Christopher Schooley]

1.56 and climbing. Spencer said earlier that we will have to wait to see what the real numbers are going to look like, but what damage could be done the higher that it climbs i.e. how low will it then drop again? The other discussion on this thread is that we clearly need pricing for spec. coffee set outside of the C- I do not think that anyone here disagrees with that.

[coffeetaster]

TODAY'S COFFEE INFORMATION FEB- 15- 08

NEW YORK COFFEE “C”
MONTH CLOSING (+/-) LOW HIGH
MCH08 149,85 -2,75 149,50 156,25
MAY08 152,40 -2,80 152,35 158,50
JLY08 154,45 -2,90 154,60 159,80
SEP08 156,45 -3,00 161,00 162,40
DEC08 159,45 -3,05
MCH09 162,45 -3,10
MAY09 164,30 -3,20
JLY09 166,10 -3,25
SEP09 167,80 -3,30
2- LONDON COFFEE TERMINAL PRICE
MONTH CLOSING (+/-) LOW HIGH
MCH08 2.336,00 12,00 2336,00 2.417,00
MAY08 2.358,00 2,00 2358,00 2.450,00
JLY08 2.382,00 9,00 2381,00 2.467,00
SEP08 2.392,00 11,00 2392,00 2.475,00
NOV08 2.430,00 64,00 2380,00 2.439,00
JAN09 2.354,00 7,00 2354,00 2.413,00

In early ICE trading, futures opened right around yesterday's late trading levels though gradually rallied on modest spec/fund support.

[James Hoffmann]

I really don't know as much about the C market as I would like to. (I am sure I am not alone in this). Does anyone have any useful links to some explanatory reading? I'd be very grateful.

[coffeetaster]

http://www.nybotlive.com
http://www.nybot.com
http://www.theice.com

A few years ago the New York Board of Trade published a few books on understanding futures and options, and a specific book on coffee futures and options.

Hope this help.

[Mike Ebert]

I find this sort of amusing - I remember at the second roasters guild, in Delevan, Wisconsin, we put on a seminar called "market forces". The idea was to explain the "C", and to get people to understand how important understanding it was, even for smaller roasters.

The class got the worst ratings of any that weekend - now, maybe it was not presented correctly or clearly (no disrespect meant to the panel we put together, that group I still respect to this day), but the overall response was more along the line of "I'm a specialty guy, why do I need to know about this, its only about the quality".

But anyway, this post is not intended to be negative, but more an observation. For starters, I believe a "C" market in the $1.50-$1.75 is a good thing for the specialty market. In my opinion, when the market is lower, especially under a buck, the lines between special coffee and premium and just plain ole average get blurred. While you could argue diffs don't change much, so that value proposition is really the same, if you take a look at the spread between the robusta market and the C when the market is at those two levels, you'll see what I am saying.

But most importantly, I hope it brings attention back to the problem we tried addressing as an industry over the past few years when the "C" was depressed. We all were focused on finding different mechanisms to price coffee, one that was fair and equitable for all in the chain, with a focus on quality. But once we hit the $1.00 range, and sustained it in the $1.10 to $1.20 range, this discussion seemed to be over. Hopefully this will drive home the point that as much change we have made in the coffee world, we are still servants to the "C". If this market continues its upward trend, and we start to see $2.00, you can bet all of us who have worked so hard at source, working directly with farmers, bringing quality up, but most importantly, opening the lines of communication between farmer and roaster; we will start to see problems. I myself have 5-6 farms where I have worked with for years and the end result is great coffee which I bought out 3-4 years at levels of $1.75-$2.00, all done when the market was under a buck. Some of these have already "inquired" about re-working existing contracts. If this market continues, I may not have a choice to at least work with them a bit. But more importantly, as we discuss pricing for the next few years, whats it based on? While I am all in favor of higher and higher prices, and more of that going directly to the farmer, I already have higher costs everywhere else, and while I won't say we are struggling, but it is tough out there.

I am a strong beleiver in the notion great coffee is one of the best values out there (compared to great wines, cigars, cheeses, etc.) and we have plenty of room to move up the price - coffee sold at $12-15 per pound retail as a start, and a cup of black sold for $2.50++ and eventually I feel it can be higher. But, if we move it too quickly, and don't educate our consumers so that they follow, we could reverse the upward trend we have in consumption.

This is a very complex issue, but a market thats in the $0.60 or in the $3.00 range, both can be as dangerous for us. I don't have the answers, but let's continue the work. Maybe that starts with a better understanding of the "C" and more discussions here.

[Tim Dominick]

Here is what a few of the traders are saying:

eleven up sessions to get KC up 20 cents, average less than 2 cents a session. wheres the up 5 or 6 cents session? Perhaps im wrong but seen it to many times when it dumps it will give back 10 days worth in a day! better to have a plan! (fish)

Averaging two cents a day, day after day, is great. That rate is a steep up-slope on the weekly or monthly chart and would march to $2+ within a couple of months. If this spiked 10 cents in a couple of days it would have a high risk of being sold into as the end game volatility. Better to have a steady rate rise at a couple cents a day averaged out. That is $2+ by the time the new crop influence coming in the early summer. I would look to backwardization is a possibility????

the response:

only problem is coffee is known for eating like a bird and shitting like an elephant!

They're all skiddish about the next 11 days, seems to be a great deal of dissension amongst the ranks, about half think it will fall back to 142 while a handful think this is the beginning of the "emerald spike" which will drive the KC to all time highs.

Scary to think that these are the people who have a huge amount of influence over the world around us. They often talk about wheat, pork bellies and OJ futures with the same lingo, they could care less about what they are trading and care only about not going long or being exposed.

[coffeetaster]

Consider that first notice day for the Mar 08 futures is next week.

Back in the old day, last century, before here was an electronic trading platform is was said that about 25% of the traders on the floor were for the coffee industry, while 75% were speculators and from financial trading houses.

Fast forward to today and we have electronic trading, floor trades are about to be eliminated, and one can execute a trade from thier laptop of pc without even calling a brokerge house to make the trade on behalf of thier account.

The market is getting more liquid, more accessable, and more volatile. I can only assume that as of today about 10% of all trades are for coffee contracts, with 90% being purely financial in nature.

We are on the midst of not just a generational change in the coffee trade, but amazing technology advances, and the first test of all the new specialty coffee business that started in the last 10 years. Consider all your friends in the SCAA/SCAE/RG/BGA and other trade groups. How many of them have experiences the these market fluctuations from the late 1990's, the early 1990's of the mid 1980's?

The market changes on both technical and fundamental news, but todays market is different than yesterdays. What to do?

Try to understand the volatility, talk with your peers and your importers, talk with your banker and read as much as possible on world economics. Understand YOUR business. Do not agree or disagree with any opinion or advice until you have researched enough of the issue to develop your own opinion. This market has the ability to put a few under-financed and under-performing companies out of business. If the market remains firm, you may see a few more companies close their doors.

Historically speaking this may be a market correction, or just increased activity based on poor economic indicators in other US markets.

This thread is great - I encourage everyone to add their own thoughts and opinions.

[Bob Arceneaux]

If the market remains firm, you may see a few more companies close their doors.

Spencer, I presume you're referring to green importers and brokers. Could you also be referring to commercial roasters who only buy commercial grade green and lose their margin with the price increase (assuming they didn't buy out very far.) Just looking for clarification.
Thanks,
b

[mnasce]

I myself have 5-6 farms where I have worked with for years and the end result is great coffee which I bought out 3-4 years at levels of $1.75-$2.00, all done when the market was under a buck. Some of these have already "inquired" about re-working existing contracts. If this market continues, I may not have a choice to at least work with them a bit. But more importantly, as we discuss pricing for the next few years, whats it based on? While I am all in favor of higher and higher prices, and more of that going directly to the farmer, I already have higher costs everywhere else, and while I won't say we are struggling, but it is tough out there.

Costs at origin are going up too. Truth be told these prices won't let farmers bear the brunt of rising inflation and energy cost. And since we (in Africa) have no Chavez to shield us from the crude oil market, it may end up being up to specialty buyers to help bridge the gap...

Here's what the picture looks like in Ethiopia, http://capitalethiopia.com/archive/2008 ... eature.htm

[nick]

This thread is great - I encourage everyone to add their own thoughts and opinions.

I'm thinking about how tired I am, and how I have so much shit to do tomorrow after the MARBC is over, packing up the machines and hauling them back to the shop for UPS or whoever to pick them up... in addition to all of the other shit.

It's my opinion that it's gonna suck.

[coffeetaster]

Bob -

We are experiencing 10 year highs in the "C" market. Anyone without experience and who is not financially stable is at risk. I feel this includes specialty roasters first who pay higher green prices than others and rely on an affluent customer base to purchase thier products. The green is getting more expensive and the high class customers may need to downgrade their purchases in a slowing US economy. Commercial roasters are at risk as thier cost of green is also increasing, and their supply contracts may not allow them to raise roasted prices, or the market will not accept price increases thus the profit margin is reduced.

I am not trying to be chicken little claiming the sky is falling, just trying to point out that in the last 10 years this industry has exploded with new roasters and roaster retailer who have not experienced this type of market volatility or price. There is often NOT a direct relationship between green costs and retail costs, thus the profit margin is squeezed, not to mention to increased in transportation costs and the decrease of available credit as back become more conservative.

Bob, yes importers and exporters are at great risk as well for the same issues above. I feel roasters need to pay very close attention to thier position, profitability, and financially stability as the current market may be very dangerous for some.

[123coffee]

With all our efforts, and all the good we have accomplished, we have to date failed to shake the values of specialty grades free of the “C” contract. Market forces including speculation push and pull at values with similar success as they did a hundred years ago. We have effected change in qualities, and delivery systems, packaging and re-created a market platform for sustaining independent roasters that had been washed away in a previous generation, but we are still at the mercy of the vagaries of the larger marketplace.

In this thread Spencer Turer has given you sound thinking, and Mike Ebert has illustrated the pressures on the independent roaster whose heart is in the right place.

The Black Frost of 1975-76 drove prices to unprecedented levels in that generation. The 1997 market peak was followed by a down cycle that saw coffee values bottom and languish there with disregard for our efforts until relatively recently. Now we are in an up trend that may threaten those enterprises in consuming countries as the down cycle threatened those in producing nations. It is the cycles that jolt and frighten coffee-people and not the comparative price level, as we have proven that we can live with coffee at any level if the playing field is a stable one. The playing field continues as in days of yore to be decidedly unstable. To quote Margot Channing, “"Fasten your seatbelts. Its going to be a bumpy night."

-Donald Schoenholt

[onocoffee]

My understanding of the C Market (and futures, in general) is quite limited. But I do have a question:

If the C Market continues on an upward spike, could this be turned around to our benefit? As the price increases towards $2.00, the resultant effect would be that everyone across the board will be raising their retail prices, stirring media attention on the market and perhaps allowing us (as in specialty) to raise our prices to unprecedented levels.

If this is the case, can I presume that our prices can stay at these new, higher levels that account for our increased costs - even if the C Market falls later?

[Christopher Schooley]

I think that the small roaster who has been focusing on quality and obtaining exciting coffees is going to be ok for the most part because their budgeting is already built around higher pricing. It will be trickier I think for an ambitious wholesaler, especially if you do any work with restuarants.