Good News for Java

It’s Monday morning, and, if you’re like me, one of the first things on your mind is drinking a cup of coffee — or two. Now, rumors have been flying for ages that coffee prices are going to skyrocket and that this $2 a day habit could soon cost $5 (and that’s for regular coffee shop brew, not the big chains or the premium blends).

 So, what’s the scoop? What can we really expect for coffee prices? I’ll tell you.

Coffee is one of the biggest commodities in the world — only crude oil is more valuable to world trade. Arabica coffee, which represents 70% of global coffee consumption, is traded on the New York Board of Trade. The largest producers are Brazil and Colombia.

Coffee futures, on the other hand, are traded on the Brazilian Mercantile and Futures Exchange, The Tokyo Grain Exchange, the London International Financial Futures and Options Exchange, and the CSCE division of the New York Board of Trade. Options on coffee are also available. It’s the trading of coffee futures that really drive the prices of coffee, as we know them.

Now, here is the interesting part, in respect to recent events in the United States: 27% of U.S. coffee inventories are held in, where else, New Orleans. In addition, a lot of coffee is processed in Louisiana: 50% of Procter and Gamble’s coffee roasters are in New Orleans and 10% of Sara Lee’s roasters are there too. Truth be known, New Orleans is one of the biggest coffee trading areas in the world.

On September 6, 2005, fears that New Orleans would suffer massive coffee inventory losses pushed the price of coffee up strongly on the futures market (raising prices 11%). “We expect the prices to continue rising until October,” said Kenya Planters Cooperative Union Quality Controller Irungu Maina, “The supplies are low right now.”

Flooding has been a major problem throughout coffee growing regions this year, causing lower production overall. After Hurricane Katrina hit, the market worried about the blow that a loss of 1.6 million 132 pound bags of coffee beans would have on this commodity’s price and availability, going forward. And obviously, this was a major concern to coffee drinkers like me!

At the end of last week, however, coffee drinkers, coffee buyers and producers, and coffee futures investors were able to sit down and relax with a cup of Joe…

Coffee futures fell to a 10-month low as the nation’s supply of beans in New Orleans was declared safe. “We are seeing the market take back that premium,” said Boyd Cruel, senior analyst at Alaron Trading.

Kevin Kelly, who stores 700,000 bags of beans in his company Port Cargo Service’s silos, said his beans are secure. “We had some roof damage in three warehouses, but moved the nearby coffee to dry areas in those buildings… we have no odors, no unusual humidity or toxicology problems, and suffered no losses…”

While some other companies might see small losses after the food inspectors check the inventories for usability, overall, it looks like the speculation in coffee futures has settled down.

A bit of good news for the New Orleans area, the people that work in the coffee trade industry there, and coffee drinkers everywhere, because the prices won’t be rising anytime soon…