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October 2018 Newsletter

Coffee prices are much in the news lately. Bumper crops in Brazil
and Vietnam have driven down coffee futures to 12 year lows. Which
is surprising, since even with bumper crops the demand for Arabica
beans (which excludes robusta from Vietnam) is only slightly less
than the current supply.

What needs to be understood is that coffee futures prices are part
of the commodity coffee market, which is based in New York and more
or less under the control of half a dozen major companies.
Commodities Futures (including coffee) are financial instruments
rather than the real goods they are supposed to be based on. There
is a similar Exchange for robusta coffees based in London.

The reason that a bumper crop in Brazil can have such a huge effect
on prices, even though it only creates a tiny excess in supply, is
quality (or the lack of it.) Commodity coffee is just that. The
overwhelming majority of green coffee produced each year is pretty
average stuff, to put it mildly. It's used to make instant coffee,
coffee flavourings, supermarket coffee, coffee pods and capsules and
cheap café blends etc.

Its "best" feature is that regardless of where it's produced it more
or less all tastes the same, which makes price the only reason to
prefer one origin over another. So when there is more coffee for
sale than buyers for it, the lowest price always wins.

There is also a market for medium quality coffees with somewhat more
distinctive origin characters. The prices for these coffees have
historically been based on the "C" (commodity) market price plus a
fixed markup. An example would be a generic Colombian coffee priced
at "C + $0.50" per pound. When the commodity price drops, so do the
prices of these coffees, which are used in the vast majority of
commercial espresso blends.

This doesn't mean that the price of a café latte will drop, since
the effect on the cost of the coffee per cup would be at most a
couple of cents. If you think about it, most cafes pay around
$35.00/kg for medium quality blends, for a cost per cup of say 35
cents. A 10% reduction in wholesale price would only mean a 3 cent
reduction in cost per cup.

Specialty coffees, the kinds that you the customers drink, are
totally unaffected by "C" prices. Demand for specialty beans always
exceeds supply, and roasters have to compete to get hold of them.
With the growth of the specialty market and more roasters chasing
better coffees, the prices are more likely to go up than down. If
you take the auction prices of Panama Gesha beans as an example,
they have increased every year as more roasters vie for the limited
amounts available.

One of the drivers for the "Farmgate" and "Direct Trade" movements
is to ensure that the coffee farmers get the bulk of these increased
prices, as with this month's special.

Back in July I promised a "spectacular organic coffee" and that's
precisely what this month's special is. We're down to the last 10kg
of Timor Maubisse green, and this coffee will take the place of the
Timor.

Organic Honduras Recinos
$54.00/kg

Front palate orange zest acidity with a smooth body and a nutty
chocolate finish.

The full name of this coffee is FLO-Fairtrade Organic Honduras Selin
Edgardo Recinos SHG (COCAFELOL) Natural Microlot, in other words
organic, Fairtrade and definitely NOT a commodity coffee.

Until next month

Alan






Coffee for Connoisseurs is a division of Frew International  Ltd.

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Contact Details:
ph: 0417568218

email: alanfrew@coffeeco.com.au

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