Yesterday, coffee quotes on the NY stock exchange closed at 246.75 USD/100lb. At the beginning of November, the price was 208 USD/100lb and yesterday, December 7, 2021 – the highest value in 2021: 252.33 USD/100lb. For some, a reason for concern; for others, a reason for joy.
This article is a guest contribution by Kleber Cruz. Kleber works for GEPA in Germany and we greatly value his enormous knowledge and overview of the coffee market.
Given this market situation, it is more important than ever, in my view, to cultivate the connection with cooperatives more intensively. This is especially important for those who buy directly from producers or cooperatives. Because even if you don't want it to be that way, they risk falling between the cracks, especially now in Central America, where the harvest is in full swing and trading relationships are heavily affected by liquidity problems, container shortages, and above all price fluctuations. The phases of high prices last a few months (between 3 to 7 months apart from 2010-2012, when leaf rust severely damaged coffee plots) and were mostly related to drought or frost in Brazil. The phases of low prices last for years. The last time prices were above the magic mark of 200 USD/100lb was in 2014, and even then only for a short time. In the years that followed (2015 – 2020), average coffee prices moved between 131 USD/100lb and 111 USD/100lb. At such a price level, there is no reasonable coffee cultivation possible, no matter how much imagination you apply, and the backlog in quality of life needs among producers is immense.
Coffee diagram from December 10, 2021, from finanzen.ch
Fluctuating prices, container shortages, and liquidity bottlenecks are not pleasant prospects for many organizations, especially because they know from experience that producer identification is put to a hard test in such times.
In Central America, the harvest has long since begun and local prices are sometimes higher than world market prices. Buyers, so-called coyotes of all sizes, compete with cooperatives for the farmers' coffee. The coyote even goes to the farmer's doorstep and buys all the parchment without any quality control, documentation, or anything like that. He buys without any effort for the producers. He pays cash and his prices are often slightly above those of the cooperatives.
Cooperatives set the purchase price for coffee at a members' or delegates' assembly. Some cooperatives pay twice: first at purchase and then months later a final payment. Other organizations pay a quality surcharge. Often cooperatives have to adjust their prices to match those of the coyotes just to get the parchment from the farmers. Being organized in a cooperative means work: the farmer must participate in the organization's activities, he must supply good quality to the cooperative (for which he gets a better price), he must handle the tasks for organic certification and other quality seals, and if he also supplies microlots, that naturally costs even more time and work. All of this falls away when selling to a coyote.
Especially when prices have risen as they have in recent months and the backlog in quality of life needs of producers is immense, the temptation is great to sell the coffee to the coyotes. And indeed, some farmers decide to do so. They sell to the coyotes. With good prices in sight, they also become coyotes themselves, or coffee buyers from relatives, neighbors, or other acquaintances who don't belong to the cooperatives, and pass this coffee on to the cooperative as their own, as far as possible.
In this competition between cooperatives and coyotes, the cooperatives don't come away completely empty-handed, they simply don't get the quantity they need to fulfill contracts and thereby achieve good prices. And this point is exactly what tempts many coffee cooperatives to become coyotes themselves, i.e., to buy coffee from non-members.
Especially when prices are as high as they are currently, the temptation is very great for some cooperatives to procure coffees in local markets without any certification, in order to stretch existing qualities and thus fulfill contracts and sell even larger quantities. Whether that is right or wrong is debatable. Such developments are only possible when coffee farmers have not received a fair price for their coffee over years.
