Odd Lots Why the Price of Coffee Beans Soared in the Last Year
Jan 6, 2022
Ryan Delany, founder of Coffee Trading Academy, dives into the whirlwind of coffee pricing. He discusses how Arabica bean prices have skyrocketed, influenced by inflation and severe weather in Brazil. The conversation touches on the complexities of coffee trading, the emotional ties consumers have to their daily brew, and the challenges smallholder farmers face. Delany also highlights shifts in consumer preferences, as rising costs lead to a transition from premium Arabica to more economical Robusta beans.
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Coffee Benchmarks
- The benchmark for coffee prices is the Arabica coffee futures market (the C market).
- Arabica is traded in cents per pound, while Robusta (traded on the London market) is in dollars per metric ton.
Physical Delivery of Coffee Futures
- Coffee futures are physically delivered, ensuring a link between futures and physical prices.
- "Aging penalties" on certified coffee stocks encourage physical consumption and prevent them from becoming purely financial assets.
Hedging Coffee Purchases
- Large coffee consumers like Nestle and Starbucks use a mix of physical contracts and futures contracts.
- Futures contracts serve as a hedge when physical coffee deals aren't favorable or specific qualities are uncertain.