Issue link: https://read.dmtmag.com/i/658240
28 STiR tea & coffee industry international / Issue 2, 2016 (April/May) Andrea Illy, c.e.o. Illy Coffee. Aaron Davis, Royal Botanic Gardens Declining Arabica Prices is still out on just how much green demand has and will be reduced (destruction) as the world continues to embrace the single serve category." The commodity markets are more hindrance then help when it comes to pricing arabica. "If the recent (5-10 year) history of volatility in commodities as an asset class is any indication, absolutely no one can judge what coffee prices may or may not do over time," says Sera. "Moreover, the decreasing lifecycle of trends and patterns in financial markets makes it hard to gauge how speculative players (what we call man- aged money) will allocate their investments in coffee and other raw materials moving forward," he said. During panel discussions (and afterward in the hall) commodity specialist Judith Ganes-Chase said that historically the NY Coffee Exchange (ICE) price for arabica futures hovers around $1.40 per pound. The Coffee C contract prices physical delivery of 37,500 pounds of exchange-grade green coffee from one of 20 countries to one of several ports in the U.S. and Europe. In 2013 coffee futures fell below $1 a pound for the first time since 2006. Two years later coffee was the best performing of all com- modities traded. Today it's once again near the bottom. Ganes-Chase predicted prices will likely to rise from the current low but she ques- tioned whether the NY "C" market would sustain $3 or more a pound. There is a fundamental disconnect in the commodity benchmark and how coffee is traded, observes Ric Rhinehart, executive director of the Specialty Coffee Association of America (SCAA). "New York has failed miserably at the task of price discovery," said Rhinehart. All coffee is coffee with a small 'c' he explains. "The kinds of coffee used by the specialty category (quality arabica) represents less than 30% of the coffee grown," he said. Rhinehart said that the current benchmark is washed arabica, a type of coffee that no longer represents market demand. "Pricing washed is less and less meaningful," he said. The quantity of washed coffee that is traded has remained at 30 to 35 million bags for 35 years, said Rhinehart. Compounding that distortion is the fact that only 3% of the coffee is actually de- livered. The remainder is traded by speculators. He noted that to avoid massive swings in the arabica market one large hedge fund recently switched to robusta traded on the London commodity market as the coffee segment of its commodity portfolio. "Volatility is the enemy of farmers," told delegates. The bottom line is that consumers who paid 25-cents a cup 40 years ago now pay $4.50 for a cup of coffee while the farmgate price of coffee has not increased in relative terms since the 1970s. Arabica prices have steadily declined for the past two years.