The topic of "coffee prices" comes up from time to time in the general media during a slow news week. It makes an interesting headline but the dynamics of retaill coffee prices is a complex problem.
Today I had a query from a customer about our roasted coffee prices. They thought that the high Aussie dollar would mean that our costs had come down yet our prices didnt move with the change in currency.
Fact is that we are charging exactly the same for roasted coffee now as we were 4 or 5 years ago. We have managed to keep the same pricing by increasing our purchasing volume and narrowing our margin which is a bonus for the customer.
Back to coffee prices. Green bean pricing comes out of New York via the "C index". This is the commodity coffee price in US cents per pound at the farm gate for C grade beans without freight and packaging. No one (except the giants Nestle, Sara Lee etc) actually purchase beans at that price but its the price scale that most of the worlds farmers use as a base before they add a mutiplier for quality, grade and availability.
Retail volumes of higher grade specialty coffees landed and packed in Australia would typicaly follow the index with a 6 times multiplier to convert to AU$ per kilo green.
Below are a couple of graphs. The top is the AU$-US$ for the last couple of years, the lower graph is the coffee index over much the same period.
You can see that while the Aussie dollar has gained about 15% in the last couple of years the beans have gone up 50%-100% depending on when they were purchased.
Which is the next gotcha. The C index is used as a point in time daily price. If I purchase beans today it will be with todays C index price multiplied by 4 or 5 (plus freight, duty and packaging makes it about 6 times landed here). Those same beans that I buy today wont land for 2-4 months and in that time the index might have dropped and they are worth less than when they left origin. Nasty for me but a whole lot worse for the big boys that roast a container of beans every month.
When the C index hit 300 I think roasters all over the world cringed... no one could wear that big a price difference and the price of roasted coffee would have to go up. Today Im seeing some people asking $15-$16 for retail 250g ($60-$64kg) and suspect they bought at the wrong time.
I guess the punchline is that the US$ makes little difference to the landed price of beans. The lower the US$ goes the higher the international freight costs are so its nearly always cancelled out. The real factor in "street price" of coffee is the C index.
It looks like the next few months will remain ok, after 3 months of steady index pricing the landed prices will settle and the $10-$15/kg for quality green beans become the norm. If the index settles at the 300 mark then the street price for green beans will be closer to $20/kg and that will push roasted quickly into the $50kg mark.
There are other factors too like the weak US$ driving investment into the commodity index which pushes prices up with the paper shuffle. It can hurt farmers (hard to sell their beans at a high price) and hurt supply (as farmers hold onto stock to get the big prices).
Its never as simple as one factor in the price of landed coffee but through luck and smart purchasing we have enjoyed a softer ride than it should have been.
8-)

Today I had a query from a customer about our roasted coffee prices. They thought that the high Aussie dollar would mean that our costs had come down yet our prices didnt move with the change in currency.
Fact is that we are charging exactly the same for roasted coffee now as we were 4 or 5 years ago. We have managed to keep the same pricing by increasing our purchasing volume and narrowing our margin which is a bonus for the customer.
Back to coffee prices. Green bean pricing comes out of New York via the "C index". This is the commodity coffee price in US cents per pound at the farm gate for C grade beans without freight and packaging. No one (except the giants Nestle, Sara Lee etc) actually purchase beans at that price but its the price scale that most of the worlds farmers use as a base before they add a mutiplier for quality, grade and availability.
Retail volumes of higher grade specialty coffees landed and packed in Australia would typicaly follow the index with a 6 times multiplier to convert to AU$ per kilo green.
Below are a couple of graphs. The top is the AU$-US$ for the last couple of years, the lower graph is the coffee index over much the same period.
You can see that while the Aussie dollar has gained about 15% in the last couple of years the beans have gone up 50%-100% depending on when they were purchased.
Which is the next gotcha. The C index is used as a point in time daily price. If I purchase beans today it will be with todays C index price multiplied by 4 or 5 (plus freight, duty and packaging makes it about 6 times landed here). Those same beans that I buy today wont land for 2-4 months and in that time the index might have dropped and they are worth less than when they left origin. Nasty for me but a whole lot worse for the big boys that roast a container of beans every month.
When the C index hit 300 I think roasters all over the world cringed... no one could wear that big a price difference and the price of roasted coffee would have to go up. Today Im seeing some people asking $15-$16 for retail 250g ($60-$64kg) and suspect they bought at the wrong time.
I guess the punchline is that the US$ makes little difference to the landed price of beans. The lower the US$ goes the higher the international freight costs are so its nearly always cancelled out. The real factor in "street price" of coffee is the C index.
It looks like the next few months will remain ok, after 3 months of steady index pricing the landed prices will settle and the $10-$15/kg for quality green beans become the norm. If the index settles at the 300 mark then the street price for green beans will be closer to $20/kg and that will push roasted quickly into the $50kg mark.
There are other factors too like the weak US$ driving investment into the commodity index which pushes prices up with the paper shuffle. It can hurt farmers (hard to sell their beans at a high price) and hurt supply (as farmers hold onto stock to get the big prices).
Its never as simple as one factor in the price of landed coffee but through luck and smart purchasing we have enjoyed a softer ride than it should have been.
8-)


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