"Coffee in New York may reach $1.30 a pound by the middle of next year, said Michael Coleman, managing director at Singapore-based Aisling Analytics, who helps run the Merchant Commodity Fund with $370 million. Arabica futures are little changed at about $1.08 this year, while robusta on the Euronext.liffe exchange in London jumped 30 percent."
Interesting development. I knew Arabica was around $1 last time I checked, which seemingly made the FT mandated price of $1.26 seem not so great any longer (actually, it still does, since no middleman is involved, unlike the NY C price).
The price continually going up is good news for farmers no doubt. But the cold hard fact is, even if arabica goes up to $1.30 on the NY market next year, farmers will be lucky if they get 1/3 that amount. Where five years ago they were getting maybe $0.05 to $0.15 a lb, they may get as much as $0.45 or $0.50 per lb at that price (optimisitically).
FT gives a farming coop $1.26 a lb, more if it's certified organic. The coop takes its operating fees, and farmers get the rest. Still a good deal compared to the NY market price, but perception is a lot too - if the NY C market price surpasses FT's mandated "price", what's the public going to think? They don't think about middlemen and unscrupulous dealers taking their cuts. They think about the dollar amount broadcast. If the press continues to mainstream this rise in the commodity price of coffee, they're going to think that FT isn't such a good deal.
I've long felt that the FT price should rise with the market (but also feel that $1.26 should be the lowest price). It hasn't changed in its history, AFAIK. It better change soon ;)
Mr_Bingley Senior Member Joined: 26 Feb 2004 Posts: 184 Location: New York Expertise: Professional
Posted Wed Sep 6, 2006, 3:34am Subject: Re: Coffee to reach $1.30 on the NY Commodities market next year??!?!
"They don't think about middlemen and unscrupulous dealers taking their cuts."
You mean the people who take the risk to move the coffee from origin to the roaster? The people who take the risk on the freight costs? The people who take the risk on the quality? The people who take the risk on the producers? Those middlemen and unscrupulous dealers?
While there are of course unscrupulous dealers, much as there are unscrupulous producers and roasters and baristas, this reflexive 'blame the middleman' philosophy is about as helpful as sitting in a circle and singing "kumbaya," and about as informed.
FWIW, the fair trade price does rise if the 'C' mkt exceeds $1.26; it always maintains a minimum of a 5 cent premium.
MarkPrince Moderator Joined: 19 Dec 2001 Posts: 5,203 Location: Vancouver Expertise: Professional
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Posted Wed Sep 6, 2006, 11:48am Subject: Re: Coffee to reach $1.30 on the NY Commodities market next year??!?!
Mr_Bingley Said:
"They don't think about middlemen and unscrupulous dealers taking their cuts."
You mean the people who take the risk to move the coffee from origin to the roaster? The people who take the risk on the freight costs? The people who take the risk on the quality? The people who take the risk on the producers? Those middlemen and unscrupulous dealers?
<snip>
FWIW, the fair trade price does rise if the 'C' mkt exceeds $1.26; it always maintains a minimum of a 5 cent premium.
On the middlemen - I was generalising of course, and I apologise for that.
But I've spoken to enough farmers now (at the SCAA shows) and seen enough documentaries to know that there are plenty of "buyers" in the middle who will do everything possible to keep any premium or price hike in their pockets and not pass it along to the farmers.
There are also plenty of the middlemen who take no risk at all. They get farmers to agree to the most one sided contracts the world probably knows - one farmer in particular related a story to me at the 2003 SCAA about his experiences before joining a FT coop about how his coffee supposedly went missing (he suspected it was the broker just taking it) and because of the deal he signed, not only was he out the money from his coffee, but had to, in a very serf-like fashion, promise a portion of his next crop to the broker at no charge.
I also know from discussion that if there's one thing just about every coffee farming family knows, it's the NY C price. Even in the smallest shanty towns of Ethiopia.
Re the FT price - I wasn't aware it would stay 5 cents above the C price. Good news, but still not good enough, IMO. Not when it was, what, 75 cents over the C a half decade ago?
Posted Wed Sep 6, 2006, 12:00pm Subject: Re: Coffee to reach $1.30 on the NY Commodities market next year??!?!
MarkPrince Said:
Re the FT price - I wasn't aware it would stay 5 cents above the C price. Good news, but still not good enough, IMO. Not when it was, what, 75 cents over the C a half decade ago?
Just going by memory Mark, but 3 or 4 years ago the C price bottomed out at something like 49.5 cents!!, I'd have to look it up on NYBOT or Google it to be sure.
Mr_Bingley Senior Member Joined: 26 Feb 2004 Posts: 184 Location: New York Expertise: Professional
Posted Wed Sep 6, 2006, 3:14pm Subject: Re: Coffee to reach $1.30 on the NY Commodities market next year??!?!
Well, and I of course was overly snarky in my reply and generalizing also. Sorry as well, as that's the one button that's too easy to push on me, the 'dealers are satan' bit. Perhaps I should write something for you sometime about how the trade from my end works, so that the folks here will hopefully have a somewhat better appreciation of how the commercial end of the business operates and how the risks we encounter are handled; from my time here I've certainly gained a better feeling for this end of the business, and if I could return the favor I think we'd all be better off.
Anyhow, back to FairTrade. If the 'c' goes higher, and this plus however the differentials change raises the Fair Trade market then up those prices go as well (This already happened this spring when the 'c' rose to $1.20 or so) and this is 'fair' in so much as the concept is for the farmers to get a certain minimum above costs of production, and anything above that is gravy, albeit well-deserved. To ask for a price that's always 100-200% potentially above the market is to grant the producer the same sort of rapaciousness that you claim to be trying to eliminate from the other links in the chain. One of the driving points behind the whole concept is to insulate the farmers somewhat from the fluctuations of the market, and by having a reasonably high floor price it certainly has done that at least for the past few years.
There certainly are lots of middlemen at work in the origins, and there quite frankly needs to be, as it simply would be a logistic nightmare to get coffee in commercial quantities shipped if the dealers or god forbid the roasters gad to negotiate with every farmer. And unfortunately there are thieves, no doubt. But as you say, you can walk into darn near any farm anywhere and by gum the farmer will have a pretty good idea of where the 'c' market is trading, and this information revolution has helped the farmer avoid the slimebags probably more than anything else. Some of the most sophisticated traders I know in Brazil work at the coops. As an aside, I always marvel when I'm in the interior of Brazil, in places as out of the way as you can imagine, at two things: 1) They all know where the market is trading, and 2) the beer is always crisply cold. I know which of those two I appreciate more...
Craig, the mkt got down to 46 and change in early august, 2002. Crazy, really.
Thanks Bingley. I checked the NYBOT Futures Coffee "C" KC archives (a download) & it went back to 1973. I was going by memory & thought it was 2000, so I obviously missed/skimmed too quick over 2002.
I do remember a post I made here in the year & month that it happened, pretty sure anyway ., when I did mention this lowest ever crash. I was just too busy to search my posts & I had to leave shortly after on business.
Posted Sat Sep 9, 2006, 9:37pm Subject: Re: Coffee to reach $1.30 on the NY Commodities market next year??!?!
... The coop takes its operating fees, and farmers get the rest. Still a good deal compared to the NY market price, but perception is a lot too - if the NY C market price surpasses FT's mandated "price", what's the public going to think? They don't think about middlemen and unscrupulous dealers taking their cuts.
What makes you think that corruption (in all it's forms) is somehow avoided with FT? coop's are equally prone to corruption with or without FT.
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