Yesterday, coffee futures on the NY exchange closed at US$246.75/100lb. At the beginning of November, the price was US$208/100lb, and yesterday, 07.12.2021, it reached its highest value in 2021: US$252.33/100lb. For some, a cause for concern; for others, a cause for joy.
This article is a guest contribution by Kleber Cruz. Kleber works for GEPA in Germany, and we highly value his extensive knowledge and overview of the coffee market.
Given this market situation, it is more important than ever, in my opinion, to cultivate closer ties with cooperatives. This is especially crucial for those who purchase directly from producers or cooperatives. Because even if one doesn't wish for it, they risk falling by the wayside, especially now in Central America, where the harvest is in full swing and trade relations are heavily impacted by liquidity problems, container shortages, and above all, price fluctuations. Periods of high prices last a few months (between 3 to 7, apart from 2010-2012, when Roya severely damaged coffee plots) and were mostly associated with drought or frost in Brazil. Periods of low prices last for years. The last time coffee prices were above the magical mark of US$200/100lb was in 2014, and even then, only for a short time. In the subsequent years (2015 – 2020), average coffee prices fluctuated between US$131/100lb and US$111/100lb. At such a price level, it is impossible to carry out reasonable coffee cultivation, no matter how imaginative one is, and the producers' need to catch up on their quality of life is immense.
Coffee chart from December 10, 2021, from finanzen.ch
Fluctuating prices, container shortages, and liquidity bottlenecks are not pleasant prospects for many organizations, especially since they know from the past that the identification of producers is put to a hard test during 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 farmers' coffee. The coyote even goes to the farmer's doorstep and buys all the parchment without any quality control, documentation, or the like. He buys without any effort for the producers. He pays cash, and his prices are often slightly higher than those of the cooperatives.
Cooperatives set the purchase price for coffee at a member or delegate assembly. Some cooperatives pay twice: first at the time of purchase and then a final payment months later. Other organizations pay a quality premium, and cooperatives often have to adjust their prices to those of the coyote in order to get the parchment from the farmers at all. Being organized in a cooperative means work: the farmer has to contribute to the life of the organization, he has to deliver good quality to the cooperative (for which he gets a better price), he has to fulfill the tasks for organic certification and other quality seals, and if he also delivers microlots, that of course costs even more time and effort. All of this is eliminated when selling to a coyote.
Especially when prices have risen as much as in recent months and the producers' need to catch up on their quality of life is immense, the temptation to sell coffee to coyotes is great. And indeed, some farmers choose to do so. They sell to coyotes. Given good prices, they also become coyotes, or buyers of coffee from relatives, neighbors, or other acquaintances who do not belong to cooperatives, and pass this coffee on to the cooperative as their own, as far as possible.
In this competitive struggle between cooperatives and coyotes, the cooperatives do not come away entirely empty-handed; they simply do not get the quantity they need to fulfill contracts and thus achieve good prices. And it is precisely this point that 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 now, 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 this is right or not remains to be seen. Such developments are only possible when coffee farmers have not received a fair price for their coffee for years.
