As I write this waiting for my plane to Panama, the New York Coffee Exchange market is already up $0.12/lb today alone and looking right in the eye at a $2.70/lb close. The market peaked at $2.94 last month, a 34-year high, and there are many analysts who feel like we may surpass the $3/lb mark in the very near future. Considering that the market’s high peaked at $1.39 on April 5th 2010, one year ago today, it’s safe to say we’ve entered a new era.
Why has the market spiked?
Good question. A combination of events triggered the upward movement.
1) Certified Stocks. Certified Stocks refer to coffee that is physically available in warehouses across the larger roasting (consuming) nations. Currently, stocks have dropped below 1.5 million bags whereas typically they would be well above 3 or 4 million bags at this point in the year and at this stage of the harvest cycle. This indicates that producers are not delivering coffee as they usually do. Instead, they are sitting on their coffee, speculating that the market will rise even more, and hoping that they can receive an even better price than the already high market would pay them.
2) Climate Change. Inconsistent rainfall has led to sporadic and spontaneous flowering across the producing world. This means that instead of relying on a 3-4 month harvesting window, farmers may now need to be prepared to harvest for 4-6 months of the year. In fact, in the Colombian growing regions Gaitania, Tolima and Pedgregal, Cauca, you can expect that there is someone picking coffee cherry virtually any day of the year especially considering their proximity to the equator and indecisive dry season. That means added labor costs with an even more focused approach to quality (i.e. ripe cherry selection). Without that extra focus yields will fail to produce at high capability. In the case of the Colombians the excessive rainfall has induced a fungal plague known as coffee rust that is capable of destroying a farmer’s harvest. Unfortunately the climate is wreaking more havoc than ever on the coffee producing front.
3) Emerging Economies. The coffee market is historically filled with extreme highs and extreme lows. In the past, farmers would hear of a market hitting 3-decade highs and rush back to their farm, planting every last square inch of it with the highest yielding varietals they could get their hands on. Five to seven years from that planting peak, the market would crash again from an influx of newly available coffee. Right now, we are in the midst of a planting peak. The common thought is that demand will meet and exceed supply in the next couple of years. Regardless of this current great migration back to the farmlands, we’ll never be able to cover the emerging 2nd class commodity consuming machines of Brazil, India and China. This in itself is enough to keep the market at current levels for the foreseeable future.
So, what does this mean to you and to Stumptown? Well, Ryan and I have been bounding from Latin America to Africa and beyond for the past 6 months at a more ferocious pace than ever before. We not only want to ensure that our supply chain is healthy, but also that the quality continues to improve as it has with every passing year of our Direct Trade Relationships. We’ve made some adjustments with farmgate pricing in order to maintain the most competitive level possible for quality, as we’re also focused on making sure our farmers are the best paid for producing the world’s finest coffees. Your commitment to Stumptown is greatly appreciated and we promise that you’ll continue to taste the difference in the cup.