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May, 2008
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GREEN COFFEE NEWS
MAY 2008 ARABICA FEATURES
STEVE RUIZ, GREEN COFFEE BUYER
Like a NASA space shuttle launch, we’ve rocketed from $1.35 straight through the upper atmosphere to over $1.70 without any hesitation or look back at the ground. Just as suddenly this shuttle has headed back to earth with the same abrupt and unexpected reversal as the Kingda Ka roller coaster at Six Flags in New Jersey. At least with Kingda Ka, you have the option of standing on the sidelines and holding the personal effects of those brave souls who choose to strap themselves in for the thrill of a lifetime.
Unlike Kingda Ka, those of us who choose not to ride are still victimized by the very real effects this roller coaster has on the price of our coffee. This roller coaster is not just US based as Europe also has it’s own version in the London Robusta Coffee Terminal where prices have similarly reversed and headed down in a move similar to that outlined by Sir Isaac Newton.
As the preliminary launch shocked most of us out of our seats, we were then challenged to determine how long and how high the rally would last. Also as the finishing touches were put on price increase memos, the ongoing
rally forced many to revise and increase the increases.
Just as suddenly, the twists and turns of this violent beast headed back to the ground and the second set of price increases were being recalculated and perhaps rescinded.
Needless to say, these are very turbulent times and much of what has happened
has absolutely nothing to do with the supply and demand of coffee.
What this has done is paralyzed the coffee producing community. It seems ironic that when the market explodes in either direction, most of those who need to act are unable to do so because of the financial crunch this action creates. Coffee producers are eager to sell and lock in very attractive prices, but doing so means entering the risky business of selling futures. When doing
so in the middle of a large rally, this requires a large financial deposit to maintain a futures position against coffee which has not yet been produced.
This risk is normally transferred to the importers upon whom coffee producers rely to sell, price and arrange shipment of their coffees. This risk is not unlimited and the time has come for many of these importers to simply stop taking orders from producers to “fix” prices given the tremendous jump in coffee prices.
A complicated mess to be sure and one not many outside of the coffee industry truly understand but a real issue at these tumultuous times.
I don’t know about you, but I’m going to put down these wallets, glasses, and keys as Kingda Ka is about ready to roll and I’ve got a front row seat reserved.
Buckle up!
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