Second only to oil, coffee is widely considered to be the most valuable legally traded commodity in the world, with an estimated 2.25 billion cups of coffee consumed worldwide every day. However, consistently high demand does not mean that coffee farmers, traders, buyers, and sellers are rolling in the beans. In fact, coffee has a history of significant price volatility that has greatly affected the ability of market participants to turn a profit.
According to Fairtrade International, this volatility spurred the creation of the first International Coffee Agreement in 1962, which was designed to stabilize the market by introducing quotas to withhold excessive coffee supplies. In 1994, a new version of this agreement stipulated that prices would no longer be regulated, and that same year, prices escalated to a high of $2.80 per pound thanks to a frost threatening crops in Brazil. Then in 2001, coffee prices fell to a thirty year low of $.45 per pound almost overnight due to overproduction, devastating farmers and putting many out of business.
Fast forward to 2011, when prices climbed to a 14-year high, spurring growers to expand coffee-growing lands and plant high-yielding tree varieties. Because of this, we are now experiencing what the Wall Street Journal calls the biggest coffee bust in over a decade due to overproduction. Arabica coffee on the ICE Futures U.S. exchange recently fell to their lowest levels since September 2009.
In order to maintain profit margins amidst never ending volatility, companies engaged in the buying, trading, and selling of coffee must have sophisticated commodity trading and risk management (CTRM) solutions providing business intelligence and analysis tools that enable smarter decisions, minimize risk, and optimize supply chain management. Spreadsheets do not provide the sophisticated functionality needed for maximizing efficiency and profitability in today’s unpredictable environment.
Coffee & Cocoa International has published an article featuring Triple Point’s Brian Seidman, VP, Solutions Director, Agriculture, exploring these very issues. It discusses how companies including Armajaro Trading and Mercon Coffee Group are leveraging Triple Point’s Commodity XL for Agriculture solution to mitigate market risk, maximize profitability, and achieve optimized supply chain management. Read it now.
Ahh, the nicer weather is upon us and summer is finally here. No better time to ice up the beverages and slap some burgers, hot dogs, chicken, and other select meats and vegetables on the grill.
Now that you have this great visual, take a moment to stop and think what it really costs to get an average barbeque together before it hits the grill.
Rapidly rising and volatile commodity prices are causing fluctuations in the cost of the raw materials, packaging, and energy that food and beverage companies must purchase in order to provide the ice cold beer, potato chips, ketchup, and other barbeque staples. When food and beverage companies aren’t properly equipped to manage this volatility, the result is reduced profit margins, and oftentimes higher prices.
For example, the ketchup that is put on hamburgers contains commodities such as tomatoes, sugar, salt, and corn syrup. When the price of wholesale tomatoes more than tripled back in 2011, Heinz cut portions of several key products, including its flagship Heinz 57 sauce, which now comes in a bottle that has shrunk by four ounces, but costs the same as the original, larger bottle.
While passing along increased costs to consumers is a very common practice, there are other options. Companies including Heineken are taking advantage of advanced technology solutions to minimize the impact of commodity volatility on their bottom lines so they don’t have to pass along price increases to the consumer. These solutions, which include Triple Point’s Commodity XL Strategic Planning and Procurement™, provide customers with powerful tools for fully mitigating and managing commodity exposure. Companies that don’t invest in the technologies and processes to properly manage this exposure will lose out on a significant competitive advantage, and risk being left behind.
Really, there is a National Cereal Day…
Who doesn’t love cereal? Sometimes it’s my three square meals for the day, and a midnight snack. The cereal aisle is my favorite destination at the supermarket, as I’m sure it is for many of you as well.
Supermarkets offer an assortment of cereals. There are the sugary and fruity cereals for the kids, and let’s face it, some adults too. And for the responsible adults, there are the organic, healthy, and high fiber cereals. The cereal industry is enormous and ever-changing due to the volatile nature of the commodities that are used. The primary ingredients of cereal consist of grains, sugar, cocoa, sweeteners, and other additives like vitamins and minerals.
The world agricultural markets have experienced volatility brought about by several factors including poor harvests, sustained demand, increased use of agricultural products for fuel, and possibly the increase in speculative trading. Consumer Products (CP) companies in particular have seen commodities become a much larger and more volatile part of their cost structure.
By implementing a fully integrated, scalable, end-to-end approach to commodity management, organizations improve real-time visibility into enterprise market risk and are able to move in and out of positions more quickly. This is why notable CP companies use Triple Point’s Commodity Management software. Learn More.
Shipping has been an important part of history dating back to the Egyptian coastal sailships of 3200 B.C., predominantly in areas where prosperity has depended primarily on international and interregional trade. The maritime shipping industry is responsible for moving over approximately 90% of the world’s traded goods. Entire countries down to your local mom-and-pop stores rely heavily on the success of this industry.
With that said, the shipping industry is currently battling some very strong headwinds due to soaring bunker costs and sinking freight prices, among other things.
Today, we have seen bunker costs represent more than 50% of total costs. Not only have these costs reached record highs – they continually become extremely volatile due to widespread fluctuations in crude oil prices. Companies must find a way to successfully manage bunker volatility, or they will not fare well in today’s stormy business environment.
A recent article by The Boston Consulting Group (BCG), “Fueling a Competitive Advantage: An End-to-End Approach to Cutting Bunker Costs,” proposes a holistic approach to managing bunker costs. The article, aside from addressing a number of concerns around analytical and organizational complexities, details an important key to success–using real-time decision support tools.
Since all fuel price increases can’t be passed through to customers, the shipping company that best manages price risk will gain competitive advantage. To succeed, shipping companies need enterprise-wide information transparency and fast access to actionable data.
Triple Point’s Softmar Chartering and VesselOps™ is a next generation shipping solution that delivers a complete picture of enterprise position and exposure, and analyzes any combination of cargoes, vessels, load, and discharge operations. It enables the commercial maritime community to protect profits, make more informed and proactive decisions, and streamline day-to-day operations by providing advanced, actionable business intelligence. Learn more