Weekly Coffee News
November 13, 2014
Blog Post – Judging a Coffee Brewing Competition: Palate Gymnastics
By Caitlin McCarthy-Garcia
Every year the Specialty Coffee Association of America holds a series of coffee competitions. Two of the more popular competitions begin at the regional level and the winners advance to the national, and finally, the world competition. This year I participated as a judge for the regional Brewer’s Cup competition held in southern California in October. This competition awards competitors that brew the tastiest coffee, and in the final round, combine that skill with a sophisticated taste experience while delivering excellent customer service.
Round one of the competition was…grueling. Each competitor was given the same coffee shortly before competition, with little time for preparation. The challenge for round one was to brew the best cup for each judge. I judged seventeen baristas and tasted seventeen unique brews of the same coffee, all behind a curtain so as not to be biased. I was surprised how different the cups were, and I found myself doubting whether they were the same coffee.
The final round, “Open Service,” was more varied and interactive. Judges sat through a short performance by the top three competitors from round one. Each barista prepared individual brews for the three judges. We were led through a tasting experience that included a background on the coffee, information about the brewing method, and detailed tasting notes. It was important for competitors to choose their words carefully. For example, during one performance, I found myself questioning whether their descriptor of “melon” should really have been “stone fruit.” To some, this may seem trivial, but this is the attention to detail that the coffee industry relies on to maintain consistency and uphold quality standards.
November 11, 2014
California Growers Seek the Next Home Brew: Coffee
The most commonly traded commodity in the world is oil. What comes in second? Coffee. It’s been grown and loved since at least the 13th century in places such as Indonesia, Ethiopia and Central and South America. As a serious fungus threatens the crop worldwide, scientists are mapping the coffee genome to learn more about this plant. Though it’s not coffee’s natural growing environment, California is actually playing a role in the future of this most beloved and lucrative crop.
Sammy Venegas stands on a hillside shrouded in fog, thick with avocado trees, passion fruit and coffee plants. With a white bucket slung around his neck like a baby carrier, he picks only the reddest coffee beans.
“The redder the bean, the better the flavor,” Venegas explains in Spanish. “It’s perfect to drink.”
Venegas’ whole family plants and harvests coffee in Oaxaca, but he’s not in Mexico right now. He’s picking coffee 2 miles from the ocean, in Goleta, California, outside Santa Barbara.
“I call my family and tell them I’m working at a coffee ranch in California and they are like, ‘Seriously?’ ” Venegas says, with a laugh. “I say, yes, we have coffee in California. It’s incredible.”
The climate in Santa Barbara is dry, but with its proximity to the ocean, its microclimates can be surprising.
“On a morning like today where it’s all foggy and socked in, you can open your eyes and feel like you’re in many parts of the world besides California,” says Jay Ruskey. He’s the first farmer to make a real commercial go at growing coffee in the continental United States. He partnered with UC Cooperative Extension’s Mark Gaskell, who’s visiting the farm today for a special occasion. Finally, after five years, Ruskey’s small crew is harvesting several coffee varieties never before grown here.
Ruskey’s operation, called Good Land Organics, takes us from the fields to the processing shed. He puts beans through a de-pulper to separate out the skin, then into a fermentation tub. The now-skinless coffee seeds sit for a day or two, while the meat separates from the bean. After they dry, Ruskey weighs 100 beans of each variety to compare their yield.
“We’re doing more than just trying to find best yields,” Ruskey says. “We’re also trying to find the best cups of coffee.”
Let’s be clear: Santa Barbara is a far cry from the tropics, where the world’s most respected coffee is grown. But Jay Ruskey is an experimental farmer, like a long line of Californians. Since the late 1800s, agricultural explorers have roamed the world looking for crops to grow in the U.S. — avocados came from Mexico and Guatemala, dates from Morocco, and navel oranges from Brazil.
Ruskey’s not the only one doing coffee research in California. Juan Medrano, a professor of animal genetics in the School of Animal Science at UC Davis, has focused on milk genetics.
“But lately, I have developed another interest, which is also looking at the genetics of coffee,” Medrano says. “If you think about it, milk and coffee are traditional companions and they make a really good latte.”
In Medrano’s lab, staff researcher Alma Esles studies the genetics of Panamanian beans that Medrano collected at different altitudes, creating a library of information. “It’s like a collection of all that RNA that belongs to that specific coffee seed,” Esles says. Temperatures and microclimates associated with changes in altitude significantly influence the flavor, aroma and “mouth-feel” of coffee.
Eventually, they’ll study the beans grown on Ruskey’s farm. “We’re interested in looking at diversity, and Jay has quite a collection of different varieties,” Medrano says.
Medrano is part of a new coffee center at UC Davis. It’s bringing together people who study food science, genetics, marketing and the social aspects of coffee. Medrano says coffee research is pretty new.
“I think it is important to study coffee. There’s several reasons,” Medrano explains. “Hundreds of millions of peoples’ livelihoods depend on coffee.” Additionally, the coffee crop is confronting some serious challenges. “The three main challenges are climate change, disease and quality,” Medrano explains.
He says California’s coffee crop is so new and small it wouldn’t really impact the worldwide coffee trade, but by growing it here we can learn about disease resistance, and farmers like Ruskey can determine if great coffee can grow outside its natural environment.
“I believe Jay’s producing very decent coffee for the conditions he’s in, so that’s admirable,” says Medrano.
Ohannes Karaoghlanian and Joanne Robles Swanson both grow avocados in Temecula. They take the bumpy ride to visit Ruskey’s farm, where coffee is growing next to and under avocado plants.
Coffee and avocados grow together in parts of Central America, and this pairing might make sense here, especially given our scant water supply.
“That’s what we’re here to investigate!” laughs Karaoghlanian.
“If they could coexist, use the same fertilizer, use the same amount of water — maybe just a little bit more — then it makes sense to put these crops together,” says Swanson.
Right now, Ruskey’s getting the best price for his beans in Europe and Japan. He’s selling coffee plant starts from his greenhouse to other California farmers, and will process their beans after harvest.
“I look forward to the day when I can cup a California coffee from Santa Barbara against a California coffee in Temecula. We’ll have a little contest, meet together, invite our friends,” Ruskey says with a grin.
This may happen soon: Ruskey is already working with farmers in Morro Bay and San Diego County.
October 27, 2014
Colombian Coffee Crop Year 2013-’14 Yields Bigger Harvest
BOGOTA, Colombia — The Colombian Coffee Growers Federation’s (FNC) reported that Colombia, the world’s leading producer of mild washed arabica coffee, registered an increase in production at the end of September. FNC attributed the improvement to its ambitious crop renovation and coffee leaf rust control programs.
Production for the latest coffee harvest year (Oct. 2013-Sept. 2014) reached 12.1 million 60-kilo bags of green coffee, according to FNC. This is a 22% increase, compared with the 9.9 million bags produced during the same period of the previous year.
Similarly, coffee production in September 2014 reached a total of 912,000 60-kilo bags, reflecting a 6% increase over the 860,000 60-kilo bags produced in September 2013.
Year to date (January-September) coffee production reached a total of 8.8 million 60-kilo bags, marking a 16% increase, compared with the 7.6 million bags produced between January and September 2013.
FNC said the production increase and higher market prices are generating higher income for Colombian coffee growing families. Between January and September 2014, the coffee harvest value, including government support, reached $1.8 billion. This reportedly translated into a 19% increase compared to the harvest value of the same period of the previous year.
July 02, 2014
Dockworkers contract at West Coast ports expires, but negotiations continue and cargo keeps moving
by Brian Watt
A strike by port clerical workers in 2012 idled trucks at the Port of Los Angeles Brian Watt/KPCC A labor contract covering about 20,000 dockworkers at west coast ports expired at 5:00 p.m. Tuesday, but cargo continued to move, as negotiators on both sides said they’ll keep talking on a new contract. The Pacific Maritime Association (PMA) and International Longshore and Warehouse Workers Union (ILWU) have been in contract talks since May 12. They issued a joint statement shortly after 5pm Tuesday: While there will be no contract extension, cargo will keep moving, and normal operations will continue at the ports until an agreement can be reached…Both sides understand the strategic importance of the ports to the local, regional and US economies, and are mindful of the need to finalize a new coast-wide contract as soon as possible to ensure continuing confidence in the West Coast ports and avoid any disruption to the jobs and commerce they support. Neither side had raised the possibility of a strike or lock-out, but memories of past labor stand-offs at the ports has caused anxiety among groups with ties to the industry. Retailers began moving goods through the ports early, causing an uptick in cargo volumes. The contract covers the work of around 10,000 dockworkers at the ports of LA and Long Beach. Together, the two ports form the busiest port complex in the country, handling more than a third of the trade between the U.S. and China. “It’s not just a matter of what happens at the port. It’s a matter of what happens in the broader supply chain,” said Tom O’Brien of the Center for International Trade and Transportation at Cal-State Long Beach. “Whether it’s a strike or lock-out, goods aren’t moving off ships onto the docks. That means truckers can’t pick up those goods, that means they can’t be processed at distribution centers or warehouses,” O’Brien said. The Los Angeles County Economic Development Corporation estimates more than 163,000 jobs in LA County alone are tied to trade and distribution of cargo. President Bill Allen said $415 billion in goods moved through the ports of LA and Long Beach last year. “The Ports of LA and Long Beach are investing about $5 billion to remain competitive, deepening and widening channels, improving terminals,” Allen told CNBC. “We are determined to continue to be the best way to move goods in and out of the U.S. economy.” O’Brien said a strike or lock-out could put LA-Long Beach’s supremacy at risk and jeopardize any West Coast port’s reputation as a viable gateway to the U.S. “Remember, shippers always have options, and they will look for the path of least resistance,” O’Brien told KPCC. “Right now, part of determining where the path of least resistance is the potential for labor unrest.” Shippers might find those paths at ports on other U.S. coasts, as well as Canada and Mexico.
June 23, 2014
Brazil’s main ports pause for home team’s World Cup matches
- RTRS 23-Jun-2014 12:41 SAO PAULO, June 23 (Reuters) -
Football fever is so intense in Brazil, the host of the World Cup soccer tournament, that even the main shipping ports in the commodity-exporting powerhouse are shutting down when the national team plays. In Paranagua, Brazil’s No. 2 soy exporting port, the dock workers’ union negotiated an ordinance that lets them stop working an hour before the match and resume work an hour afterward for a total of around four hours to relax and watch the Brazilian team. “This is unprecedented,” said the port’s press representative, Samar Razzak, who added that the port usually operates even during the New Year’s and Christmas holidays. Brazil has not hosted a World Cup since 1950. Dock workers went on strike several times last year and it is seen as in the interest of port authorities to keep them happy as soybean shipments wind down and sugar and coffee pick up in the world’s top exporter of those commodities. The agreement in Paranagua applies to Brazil’s matches during group play, including Monday afternoon’s final group match against Cameroon, Razzak said. The match kicks off at 2000 GMT. If Brazil advances to the next rounds of the tournament, which begins June 28 and ends July 13, a new ordinance will likely be drawn up, she said. In Santos, the port that accounts for 25 percent of Brazil’s shipping trade, individual terminal operators decide what to do during the national team’s games, a port spokesman said. During the previous two Brazil matches on June 12 and June 17, most terminals halted operations for two hours during the games and resumed work shortly thereafter, the spokesman added. Administrative workers at both Santos and Paranagua planned to leave work at 1 p.m. local time on Monday, though some mooring and security workers were to continue working. Financial markets, banks and other companies have also closed early on game days in Latin America’s largest economy. (Reporting by Caroline Stauffer and Gustavo Bonato, editing by G Crosse)
May 21, 2014
Colombia coffee exports to hit 21-year high
Colombia will strengthen its newly-rediscovered grip on third rank among world coffee producers next season, lifting its harvest to a seven-year high, while heavy rains lower output in rival Indonesia.
Colombian coffee production will hit 11.9m bags in 2014-15, the highest since 2007-08, as bushes mature that were planted a reseeding programme aimed at promoting varieties resistant to the rust fungus, the US Department of Agriculture’s Bogota bureau said.
“Replanting efforts with rust resistant varieties and the return to more normal weather conditions have continued to support a production recovery,” the bureau said in a report.
Besides the wait for new trees to mature, Colombian output was also held back during 2009-11 by excessive rains, blamed on the La Nina weather pattern, which promoted ideal conditions for the spread of rust.
But output has recovered strongly since, and its forecast to hit 10.8m bags this season, with rust believed to have affected “only” 7% of coffee area.
Colombia vs Indonesia
The rise in production will lift exports to 11.59m bags, a 21-year high, the bureau said,
“Colombian coffee exports have been expanding significantly since 2013,” with more than 40% going to the US.
The South American country’s rising fortunes contrast with those of Indonesia – which overtook Colombia to take third rank in coffee output between 2008-09 and last season, when output was depressed first by hot and dry weather which reduced flowering, before excessive rains set back fruiting.
Production in the South East Asian country is seen falling for a second successive season in 2014-15, to 8.9m bags, depressed by “excessive precipitation during the 2013 dry season”, which disturbed pollination of the flowers bearing this year’s cherries.
“Robusta coffee, which requires wind and insect pollination, is expected to face declines up to 500,000 bags,” the bureau said.
Indonesian output is also being held back by “poor agricultural practices” and by the extent of old trees, with waning yields.
El Nino threat
Indonesia’s woes will curtail its exports to a seven-year low of 7.2m bags in 2014-15, more than 4m bags behind those of Colombia.
However, Colombian growers may yet face their own weather setbacks if an El Nino weather pattern begins this year, as expected, and which has a history of cutting the country’s rainfall levels.
Official Colombian meteorologists say that “the El Niño phenomenon is on the horizon, and will create drought conditions towards second half of 2014, which could stem the ongoing production recovery and affect coffee quality”.
Drier weather would also encourage outbreaks of the broca cherry borer beetle, “also impacting coffee quality and exportable supplies”.
Some concern over Colombia’s recovery was also raised last week when data for April showed the first year on year fall in monthly output since 2012, with output falling 14% to 832,000 bags.
In March, production rose 34% year on year.
By Agrimoney.com – Published 20/05/2014
May 19, 2014
Coffee fungus raising prices for high-end blends
E – In this Feb. 9, 2013, file photo, small coffee producer Hector Perez show coffee beans damaged by the roya fungus in San Gaspar Vivar, Guatemala. The U.S. government is stepping up efforts to help Central American farmers fight a devastating coffee disease _ and to keep the price of your morning cup down. A fungus called coffee rust has already caused more than $1 billion in damage across the Latin American region. It is especially deadly to Arabica coffee, the bean that makes up most high-end, specialty coffees, and it is already affecting the price of some of those coffees in the United States. (AP Photo/Moises Castillo, File)
WASHINGTON (AP) — The U.S. government is stepping up efforts to help Central American farmers fight a devastating coffee disease — and hold down prices.
At issue is a fungus called coffee rust that has caused more than $1 billion in damage across Latin American region. The fungus is especially deadly to Arabica coffee, the bean that makes up most high-end, specialty coffees.
Already, it is affecting the price of some of those coffees in the United States.
“We are concerned because we know coffee rust is already causing massive amounts of devastation,” said Raj Shah, head of the U.S. Agency for International Development.
On Monday, he was expected to announce a $5 million partnership with Texas A&M University’s World Coffee Research center to try to eliminate the fungus.
But the government isn’t doing this just to protect our $4 specialty coffees, as much as Americans love them. The chief concern is about the economic security of these small farms abroad. If farmers lose their jobs, it increases hunger and poverty in the region and contributes to violence and drug trafficking.
Washington estimates that production could be down anywhere from 15 percent to 40 percent in coming years, and that those losses could mean as many as 500,000 people could lose their jobs. Though some countries have brought the fungus under control, many of the poorer coffee-producing countries in Latin America don’t see the rust problem getting better anytime soon.
Guatemala, El Salvador, Honduras, Panama and Costa Rica have all been hard hit.
Much of the blander, mass-produced coffee in this country comes from Asia and other regions. Most of the richer, more expensive coffees are from small, high altitude farms in Central America. Because the farms are smaller, farmers there often don’t have enough money to buy the fungicides needed or lack the training to plant in ways that could avoid contamination.
The rust, called roya in Spanish, is a fungus that is highly contagious due to airborne fungal spores. It affects different varieties, but the Arabica beans are especially susceptible. Rainy weather worsens the problem.
“We don’t see an end in sight anytime soon,” said Leonardo Lombardini of Texas A&M’s World Coffee Research.
So far, major U.S. coffee companies have been able to find enough supply to avoid price increases. But some smaller outfits already have seen higher prices, said Ric Rhinehart of the Specialty Coffee Association of America.
Rhinehart said the worst-case scenario is that consumers eventually will pay “extraordinarily high prices for those coffees, if you can find them at all.”
He said some very specialized varieties from a single origin — Guatemalan antigua coffees, for example — have been much harder to source. If the problem continues, he says, some small coffee companies either will raise prices or use blends that are easier to find, decreasing the quality of the coffee.
Larger companies such as Starbucks and Keurig Green Mountain Inc. have multiple suppliers across the region and say they have so far been able to source enough coffee.
“It’s a little bit too soon to tell what the impact will be on supply and long term quality over time,” said Lindsey Bolger, who heads up coffee sourcing for Keurig Green Mountain.
Still, the companies are trying to ensure that their future supply isn’t affected, so they are working closely with growers on better practices that will help them avoid contamination.
“Supporting the farmer’s ability to access information, technology and resources allows them to adapt to these uncertainties and ensures the longevity of our industry’s supply chain,” said Craig Russell, Starbucks Global Coffee executive vice president. Starbucks even bought a Costa Rican farm for research purposes.
USAID intends to work with Texas A&M to step up research on rust-resistant coffee varieties and help Latin America better monitor and respond to the fungus. The U.S. already collaborates with some of the coffee companies and other international organizations to finance replanting of different varieties of trees.
The effort is part of the Obama administration’s Feed the Future program, which aims to rid the world of extreme poverty through agricultural development and improved nutrition.
While the effort has helped hungry children around the globe, “we’re at risk of backtracking because of coffee rust,” Shah says.
April 09, 2014
Coffee Flour … coming to a cake near you…
Two years ago, Dan Belliveau hit upon the idea for a new product: Coffee Flour. A former director of technical services at Starbucks, Belliveau had learned about coffee production while designing and building roasting facilities. The process, he realized, resulted in lots of waste, which could be used.
The dried, roasted coffee beans we use to make our java are actually seeds that have been extracted from bright red fruit known as coffee cherries. Once farmers remove the beans, they are left with a huge amount of edible, nutrition-rich cherry pulp. In some countries the byproduct is dried and used to make tea, but, for the most part, it’s simply discarded and left to rot. Suspecting there must be a better way, Belliveau took it upon himself to create a rudimentary coffee berry flour and began experimenting. “My wife made some shortbread cookies and granola,” he says. “When it actually tasted good we thought, wow, we’ve got something here.”
Photograph by Nathon SimsToday, Belliveau’s Vancouver-based startup, CF Global Holdings, has developed a patent-pending process for the milling of commercial-grade coffee flour. Gluten free, the product has three times more iron than spinach, three times more protein per gram than kale, and five times more fiber than whole grain flour, according to the company. “Most flours are somewhere between 5 and 12 percent fiber,” says Belliveau. “Coffee flour is 55 percent fiber.”
The java flour doesn’t taste particularly like coffee—it has a “sweet, dried fruit flavor,” says Belliveau—nor does it have much caffeine. To get a jolt equivalent to one cup of joe, a person would have to eat anywhere from seven to 16 slices of bread made with about 20 percent coffee flour. (To get a palatable consistency and texture, coffee flour is best used in combination with other grains.) Also, the edible caffeine product tends to have a slower, more sustained effect than liquid coffee.
With mills churning in several countries, CF Global plans to produce about 350,000 pounds of coffee flour this year. The startup received an undisclosed amount of funding from private investors and from industry giants Mercon Coffee and Ecom Coffee; Intellectual Ventures, a firm started by former Microsoft CTO Nathan Myhrvold, also invested and helped with the patenting process.
Belliveau says his process requires only minor tweaks to existing coffee manufacturing equipment and that farmers will profit while only expending about an extra 25 percent effort, since they already have the coffee waste on hand. CF Global hopes the added sales will help farmers take home an extra 30 percent to 50 percent of what they get from manufacturing coffee beans.
Even if it doesn’t pack a huge wallop, caffeine-laced flour will undeniably have appeal. U.S. retail sales of caffeinated foods totaled about $1.6 billion in 2012, a 49 percent jump since 2008, and the growing list of bizarre caffeinated products includes Bang!! Caffeinated Ice Cream, Perky Jerky, Java Mallows, Cracker Jack’D Power Bites, and Wired Waffles. There’s even a patent-pending topical caffeine spray called Sprayable Energy, which is spritzed on the same way as perfume or cologne (“preferably on the neck for greatest effect,” say the inventors).
March 25, 2014
Brazil Drought Rewards Coffee Hoarders Selling at Two-Year Highs
By Gerson Freitas Jr.
March 25 (Bloomberg) — Brazil’s worst drought in decades is coming with a silver lining for coffee growers responsible for one in every three cups of fresh java drunk in the world.
A price surge as the dry spell hurts crops is allowing farmers to sell stockpiled coffee at a profit for the first time in a year to pay debt and fertilizer bills. Sales at the highest price in two years will more than offset output losses and leave farms less pressed for cash when harvesting starts next month, according to growers and analysts.
“The price situation was stifling before,” Lucio Dias, commercial superintendent at Cooxupe, the world’s largest coffee-growers cooperative, said in an interview from Guaxupe, Brazil. “Now that prices improved, growers rushed to sell stocks to make some cash.”
Brazilian coffee trees suffered the driest and hottest start of the year in at least six decades, fueling a rally that sent New York futures to a two-year high on March 12. Roasters, who until December were buying the bare minimum on the prospect of ample supplies and lower prices, have been speeding up purchases because of uncertainty over the crop that growers will start harvesting in April or May, Gil Barabach, an analyst at crop researcher Safras & Mercado, said from Porto Alegre.
“Coffee stocks moved from the supply side to the demand side,” he said. “Farmers are now more capitalized and won’t be pressured to sell during the harvest.”
Cooxupe’s 12,000 producers have sold 2.2 million bags at rising prices since the beginning of the year, which represent about 44 percent of their usual annual sales and more than Costa Rica produces each year.
The stockpile sales will help support prices during the harvesting period because farmers won’t need to sell large volumes to pay debt, Dias said.
Coffee touched $2.0975 a pound on March 12, the highest since February 2012 and more than double a seven-year low of about $1 in early November. Futures pared part of the gain last week after producing areas in Brazil received some rain and closed at $1.764 a pound on ICE Futures in New York yesterday.
Futures probably will remain close to $2, a level that’s not high enough to encourage growers to boost output and still affordable for roasters, Roberio Silva, executive director of the London-based International Coffee Organization, said yesterday in an interview at a seminar in Sao Paulo.
“We expect supply and demand to remain balanced at current prices,” Silva said. “We see a healthy stockpile transfer from farmers to roasters.”
Last year, producers were offered to sell some of their output to the government at subsidized prices when the local market was paying less than the cost of about 300 reais ($129) per 60-kilogram (132-pound) bag. They were paid as much as 485 reais this month, according to data from the University of Sao Paulo’s Cepea agricultural research agency.
“Many roasters postponed coffee purchases because they were betting in even lower prices,” Eduardo Carvalhaes, a trader at Escritorio Carvalhaes, Brazil’s oldest coffee-trading firm, said by phone from the port city of Santos. “When the drought came, everyone rushed to do business.”
Jose Maria Pontes, a coffee farmer in Monte Santo, sold about 70 percent of the stockpiled production from his 145-hectare (360-acre) farm after prices climbed above 300 reais per bag by the end of January.
“Everybody had that level in mind,” Pontes said during a coffee break at a farmers meeting in Cooxupe’s headquarters. “Now, we’re looking at the 500-real level.”
Cicero Moreira da Silva, who had sold about 60 percent of last year’s crop at a loss for 250 reais a bag on average, was able to sell the remainder for as much as 360 reais after February’s rally.
“It was hasty of me,” said Silva by phone from Guaxupe. “If I had waited a little longer, I could have sold it for at least 450 reais.”
For the coming crop this year, Silva has locked in prices as high as 490 reais a bag on about 30 percent of production for delivery in September. The rising prices will more than offset an estimated 10 percent production loss because of the drought in his farm.
“The drought was a good deal because I won’t lose that much coffee,” he said. “We still don’t know for sure what the effects on future crops will be.”
March 06, 2014
Colombia coffee exporters fight ‘price war’ after contract defaults – RTRS
By Peter Murphy
BOGOTA, March 5 (Reuters) – Some arabica coffee buyers in Colombia have ripped up supply contracts with exporters, setting off a price war for high-quality beans in the first sign a 75 percent surge in prices so far this year is starting to disrupt the market, exporters say.
Trading houses have been forced to scramble to source spot supplies at far higher costs after middlemen, a small but crucial group of traders who source coffee from farmers, defaulted on supply contracts amid wild price volatility.
The defaults in the world’s No. 1 washed arabica producer will add to unease in the coffee market amid arabica’s biggest rally in decades and could mark the start of problems the physical market has been bracing for as a prolonged drought and devastating fungus damage crops in Central and South America.
News of strains in the market also comes after the International Coffee Organization (ICO) warned this week that the global market could flip into a deficit this year for the first time in five years.
To be sure, there have been no reports of defaults by exporters and the supply squeeze in Colombia will likely ease as the ‘mitaca,’ or mid crop, gets under way in the coming weeks. The country is expected to produce a large crop of about 11.3 million 60-kg bags this year
But it may feed fears that at worst, delays or defaults on domestic contracts could force exporters to walk away from their own commitments, which would shred trust they have earned with importers and roasters in the close-knit industry.
With crops in Central America and Mexico down due to the roya or leaf rust fungus and Brazil’s farmers bracing for losses due to the devastating drought, some fear roasters may have few alternatives for Colombia’s washed, mild arabicas.
SUPPLY DEALS DITCHED
A trader at one exporter said he was now engulfed in “a big price war” as some middlemen commit batches of coffee to one bidder after another, ditching the deals each time a better offer comes along.
He said smaller exporters would be most vulnerable to defaults as they lacked the deep pockets of large trading houses to secure supplies in the fiercely competitive market.
From afar, U.S. traders worry that arabica’s breathtaking rally could trigger a wave of defaults along the supply chain.
“High prices, and especially in markets that move this quickly, bring about all kinds of problems, one of the biggest being defaults,” said Bob Phillips, president of Caturra Coffee Corp in Elmsford, New York.
Phillips buys primarily from Brazil and said he hadn’t experienced any delivery problems so far.
On Thursday, contracts traded on New York’s ICE futures exchange retreated back below the $2 per lb they had hit on Wednesday for the first time in two years, to $1.96 per lb.
In some cases, as much as half of the coffee contracted via middlemen failed to turn up, traders said.
“This weekend we had to go to get it ourselves,” said a trader at one local exporter. His staff had to buy directly from farmers after his supplier failed to deliver beans they had forward sold before the surge, at lower rates.
Rising 75 percent so far this year, arabica coffee is by far the best performer on the Thomson Reuters/CoreCommodity CRB Index .TRJCRB, trailed by lean hogs in second place, which have risen 29 percent.
COLOMBIA MID-CROP COMING
Any stumbling on contracts would put further strain on roasters and traders who are now forking out twice as much for their beans as they would have in November when prices were at seven-year lows close to $1.
“I think some intermediaries went ‘short’ at the beginning of the year. … The rest are just trying to take advantage of the situation and make money from it,” he said.
Defaults by exporters are rare given the strong incentives the companies have to fulfill their contracts. The cotton trade is still working through a backlog of legal disputes after defaults in 2011 when prices quite suddenly doubled.
“We lose out by buying coffee at a higher price, but it is worse to not fulfill your contract and have claims against you and see your reputation suffer,” said the trader at a multinational exporter based in Bogota.
(Additional reporting by Marcy Nicholson in New York; Editing by Jonathan Oatis)