Lost among the commodity prices for gold, silver and oil, the coffee prices jumped to a thirteen-year high in the last few months. Starbucks, Millstone, Caribou and others have been forced to raise their prices to reflect the higher prices of raw materials and rising prices have not been limited to high-end suppliers. Both JM Smuckers and Kraft Foods have been forced to raise prices on their Folgers and Maxwell House brands, respectively. Statistics shows that the coffee prices have risen 45% since early June last year due to serious production problems in various geographic locations. The length of the monsoon season in Asia has affected crops in India, Vietnam and Thailand. These countries represent almost 30% of the world’s coffee production. While a prolonged rainy season has delayed the harvest in Asia, Brazil has been hampered by the lack of rain. Brazil is the largest producer of coffee in the world and in accordance with Brazilian coffee, the drought condition could cut production levels at its lowest level in four years.
Trade in agricultural raw materials implies an understanding of price risk associated with each market. Overall supply and demand are two types of risks to be taken into account. Agricultural products have a range of risk factors that is reflected in rising coffee prices. This protects against any setbacks created during the growing season by the weather and the accounting of labor disputes during the harvest season. This is exactly the opposite of risk associated with investing in the stock market. Fear is diminishing and is integrated into the risk premium to fall.
Commercial Drive is composed of two groups of commodity producers, which controls the supply of a product and the consumer that creates demand for the product. These two groups are responsible for the struggle to create value for coffee prices. When a market is overvalued, producers of raw materials in the market sell the crops they expect to produce in a given period. Conversely, when the coffee prices fall below a fair value received, companies like Kraft Foods and JM Smuckers adjust their market entry and product inventory management to meet their future production needs. The International Coffee Organization (ICO) also has an indicator of historical coffee prices called the ICO composite indicator which goes as far back as 1947 and has a reference of historical coffee prices. It is generally accepted worldwide and is the best available indicator for the transaction levels of green coffee in the world.
The International Coffee Organization also provides access to its official website for statistics on trade and prices of various coffee products. For more detailed reports and information (for example, the monthly, quarterly and annual reports) you can take a subscription service. They are also involved in several projects to ensure a sustainable coffee economy, such as participation in various projects, emergency assistance, improving the quality and efforts to combat diseases and pests. All this helps to ensure that coffee is still one of the main products traded having a viable future for the producer, distributor, including the end user and allowing the control of coffee prices.
