Market price calculation - Is this Right?

cloudsipper

New member
Oct 26, 2007
22
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In another post I suggested a List of 'best prices paid for greens', but perhaps that is very naive considering some of you are in the green bean selling business. The intent was to foster cooperative behavior to reduce everyone's costs, benefit deserving growers, and foster dialogue about the purchasing process. So far none of that has happened. OH Well.

The reality struck me that most of this pricing is synthetic at best, because the market price is (or can be) known at any point: it is the sum of the 'C' coffee commodity price plus a differential based on availability (or its perception) at the importer level. So Let's Cut to the Chase!

1) Publish a dated list of differentials for each importer for each offering
2) Publish the 'C' price.

The sum of these is the lowest price (barring extensive quantity discounting) that any of us could pay for greens.
Now some questions
Is this an accurate assesment?
Where does relationship coffee pricing fall relative to this?
Can we possibly improve on this?
Higher grade/quality?
Lower price?
Reduced transport costs?
 

Carmine Domenaco

New member
Oct 10, 2007
31
0
1) Publish a dated list of differentials for each importer for each offering
2) Publish the 'C' price.

The sum of these is the lowest price (barring extensive quantity discounting) that any of us could pay for greens.
Now some questions
Is this an accurate assesment?
Where does relationship coffee pricing fall relative to this?
Can we possibly improve on this?
Higher grade/quality?
Lower price?
Reduced transport costs?

Differentials are generally established by origin as it relates to Brazil and the "c" is not static. Importers cull a percentage based on the fixed contract price. It is rare for any importer to publish a price list, if they do it is only for coffee that is locked into contract.

The only way a roaster can guarantee a price is to fix a contract. This is often done well ahead of the arrival and in many cases before the coffee is harvested. The coffee is subject to sample approval and usually the roaster will get a mill sample then a landed sample which must be approved.

Relationship coffees are priced based on the stipulations of the contract, it is rare to see this tied directly to the "c" with exceptions for when the "c" climbs above or near the base price.

For example, if the buyer is willing to pay $2 a pound for anything that cups between 85-87 and a premium of .50 per pound for 88-90, an additional premium for 91-93 and a final premium for 94+. These prices are paid directly to the farmer and there are additional expenses paid to the exporter/co-op and/or importer. The fees to the importer are somewhat higher than normal because there is quite a bit more work to bring in a container of coffees that are from a number of different ICO numbers. Paying $3.85-$6.50 FOB per pound is not uncommon in relationship coffees.

In essence, with coffee you get what you pay for. Lowering the cost of coffee without compromising quality is damn near impossible and getting harder all the time. Specialty coffees, by most accounts, should put at least $2 gross per pound into the hand of the farmer, presently this is not the case. (Except this year in Ethiopia where G4 FTO Harrar is being traded at over $3, G2 org. yirgs and sidamos are $2.60-$3.25)

Lowering transport costs is very difficult. Obviously if you have 20 bags and can find space in a container headed to your destination you can save by teamwork. Once you fill the box it is hard to get the price down, so much is fuel surcharge and the inevitable customs inspection charge.

Moving forward, great coffee should be disconnected from the "C" and it is happening already. Booking the '08 arrivals, we are seeing prices go way up, mostly due to lower yields. Kenya and Ethiopia production is down 20-40%, Bolivia and Peru were off this fall, and it is hard to say just yet with Centrals. Sumatra will be short and those who were looking for Timor are just plain out of luck.
 
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