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.