Jonah Engler on the History of Coffee Futures: Then, Now and the Future

Coffee Futures: Then, Now and the Future

As a lover of coffee and finance; coffee futures, present the perfect intersection for me. The history of coffee trading has roots in global trade spanning a bevy of continents. From Africa to Asia, the trade has shaped nations and the living habits of people. Prices in coffee have grown considerably from 2005 through present times.

In 2005, prices of coffee products began to increase because of growing use in Russia and China and partially because of weaker harvests, which fell by as much as 10 to 20 percent compared to previous years.

Per the Composite Index of the coffee exporter-nations’ group, the International Coffee Organization in London, the monthly average of coffee bean prices in international market exceeded over 100 US cent per pound in the 1970s and 1980s, but then fell in the late 1990s to its lowest level in September 2001 at just 41.17 US cent per pound and remained so until 2004.

Several coffee producers now sell out their entire inventories, though profits have not increased necessarily, as the costs of gasoline, transportation, packaging and shipping have heightened.

Specialty coffee, however, is often not traded on commodities bourses. For instance, Starbucks purchases almost all its coffee through multi-year contracts with independent producers that usually cost almost 100 more than the commodity rate.

It is also notable that the coffee beans traded at stores is priced differently than wholesale coffee being sold on commodity exchanges, which is shaped by variation in consumption patterns and prices.

The reduction in the cost of green coffee ingredients, while not the only cost factor for the end consumer, occurred at the very time when specialty cafĂŠs were growing in popularity and selling their coffee products at record highs.

According to a study conducted by Specialty Coffee Association of America, in 2004, 16 percent of American adults were regular consumers of specialty coffee. There were more than 17,000 retail specialty coffee outlets such as cafĂŠs, kiosks, coffee carts and retail roasters, which were selling coffee worth approximately $8.96 billion.

The growth of Brazilian coffee producers and Vietnam’s foray into the industry in 1994, when the America’s trade embargo against it fell, has increased supply pressures to farmers.

The market rewarded the more active Vietnamese coffee traders with high demand, thereby compelling less robust producing nations such as Brazil, Nicaragua and Ethiopia to stop production as they were less competitive in terms of efficiency. Many of the workers in these nations were forced, as a result, to move into impoverished city living situations after abandoning the agricultural trade.

This post was repurposed for distribution. To read more articles just like this from Jonah Engler, visit his main website at JonahEngler.com.