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Coffee Prices - 2012 and beyond

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  • Coffee Prices - 2012 and beyond

    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.


  • #2
    Re: Coffee Prices - 2012 and beyond

    Originally posted by 517E7469100 link=1327916548/0#0 date=1327916548
    Green bean pricing comes out of New York via the "C index".
    Im sure this has been raised before but is there anyway of getting around the C index legally? What stops people from buying direct from the source and setting your own process? If I remember correctly that was what happened with the Tanzanian Rononi.


    • #3
      Re: Coffee Prices - 2012 and beyond

      Originally posted by 575D485F5F504442310 link=1327916549/1#1 date=1327917882
      getting around the C index
      You cant get around the C. The Rononi that you mentioned was purchased at auction and the buyers will all start at "C" and then it goes up from there.

      So even if the coffee isnt being traded on the C the price is still in line with it.


      • #4
        Re: Coffee Prices - 2012 and beyond

        It has not been uncommon in past history for enough roasters that tried to buy direct, to receive a different grade coffee to the sample over which the original "deal" was made. No more need be said.

        When you buy through the regular professional channels in Australia you have a 100% guarantee that if you dont like what is delivered, you can return it. That guarantee is priceless.

        And of course for those that do buy may not necessarily be about the dollar....

        In any case the well known risks in trying to buy direct in this industry, have to be weighed up against the very small savings that might be made in the end, and its anyones opinion but it could be that the sell price of a kilo of coffee beans is not that prohibitive....?


        • #5
          Re: Coffee Prices - 2012 and beyond

          Originally posted by 1B343E235A0 link=1327916549/0#0 date=1327916548
          Today Im seeing some people asking $15-$16 for retail 250g ($60-$64kg) and suspect they bought at the wrong time.
          $15.00 for 250gm packs are common in Sydney, however, Ive never come across a roaster whose 1kg price is 4 times their 250gm price. At the very least, savings from reduced packaging and labelling costs are usually passed on to the customer.

          In regards to buying at the wrong time, as the graphs show, price dips are anomalies. As long as the trend continues to head north, wouldnt buying in the future instead of now be more likely to be the wrong time?


          • #6
            Re: Coffee Prices - 2012 and beyond

            So is that why blended roasts seem to stay the same price but cheapish single origins tend to be more expensive than they are worth? Cos of supply/volume and being able to dodge the 300 spike?

            I would occasionally buy 250grams of a roasted from a sydney roaster so to get the taste of a bean but now i just buy the green and try it myself. Its just not good value.


            • #7
              Re: Coffee Prices - 2012 and beyond

              I have been buying beans from beanbay, and if you want to put a price for the quality of the beans, roast quality, import costs, packaging, delivery, speed of delivery,etc then the price should have been more than what we are paying now and yet Andy is charging the same price for the past 4-5years.


              • #8
                Re: Coffee Prices - 2012 and beyond

                Very interesting write-up, thanks Andy.