What price the coffee in your espresso?
With coffee prices remaining high and stubbornly firm around 220 > 230 cent / Lb you have to wander what on earth is going on in the market place….? Coffee is quoted at a market price – This is base price. This price is used as a guideline and to buy and sell “paper coffee” contracts
To the base price a “differential” needs to be added
The differential is the +ve or –ve at which origin coffees and gourmet coffees trade vs the market price
The market price + the differential = The Free on Board Price (FOB)
Onward delivery to European port is an extra charge and can be quoted –
- CIF (Cost/Insurance/Freight)
- FOT (CIF + Beans out of warehouse)
- FIF All costs delivered to factory door
Ok so what influences coffee prices…? Well traditionally, fundamental factors were most important- but as recent intraday trading volatility and ranges show, speculative and fund driven activity is now a key driver
In general terms then most important factors are
Supply > Demand
Eg: Kopi Luwak + 6500 c/Lb bags vs Brazil 45 m 60 kg bags pa -5 c/ Lb
Increasingly accredited coffees are seeing differentials firm due to supply > demand concerns
As a result of higher terminal market prices many farmers are leaving accredited systems such as Utz / Fair Trade and Rain Forest
Alliance. This at a time when demand from Northern Europe is growing strongly…the net effect we now see RFA Brazils with CIF differentials at an aboard +50 whilst Centrals can be had at + 20…
Elasticity
Traditionally, elasticity was also a major influencer of differential price…by this we mean the ability to find an alternative coffee within the flavour family. Colombian is a good example…..if you want / need and specify Colombian Coffee nothing else will do….! Hence Colombian differentials (+45 > 60)
Screen size
The size and beauty of the beans you want! Brazil Grinder (-15c / Lb) Mexican Maragogype (+ 250 c /Lb) (Measured in sizes < 12 > 19 – 23)
Altitude of Plantation
Altitude is all to the coffee snob…..although South Africa (now growing Arabica at sea level ) and Thailand where fabulous Arabica is grown at or less than 600 metres seem to blow this rule away…
Other good examples:
Central American Coffees Honduras HG / SHG c 30c > 50 Lb
Guatemala HB / SHB c 20 > 35 c Lb
Defects
How many funny bits per 100 beans or 300g
Flavour characteristics (Within the family)
Brazil Good Cup vs Fine Cup (+ 5 c Lb)
Kenyan A > AAA (Size) FAQ > TOP TOP (Taste) = + 250 c / Lb range
Fundamentals
Frost – Drought – Earthquake – Meteorological phenomena
Speculators
Lower equities encourage speculators to look for a return elsewhere
Supply & Demand – Fundamentals
- Coffee consumption is growing –
- New /Emerging Markets – China
- New Consumption – In Origin
- New Consumers – European Café Culture
- Improved agricultural techniques & replanting programmes
So ! Coffee pricing is complicated… and has grown ever more complicated in the current volatile economic climate where commodities seem a safe investment bet! Rest assured, you don’t need to worry about any of this with our fab ESE espresso pods… we keep a strict eye on consistent quality… Guru’s old friend has over 50 years expertise …he spits and slurps and gives us the nod before we pack and send our finest espresso to you to savour and enjoy in the comfort of your own home…lucky you!
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