The Best Hedge Is Quality

Commodity arabica coffee has been trading in the $1.75-$1.83 per pound range the past month.  Analysts predict that maybe it'll drop down to the $1.60s once they have a better fix on Brazil's production. Or maybe not.

$1.80 per pound is roughly 20 cents higher than the C-market has been at any time in the past two years.  Usually C-market coffee has traded in the $1.40-$1.50 range, although it's floated around $1.60 for awhile before this last jump.

So we're talking about something in the neighborhood of a 20%-30% increase over what roasters are used to paying for commodity arabica.

What does this mean to coffee drinkers?  Here's a short (and general) overview of what we believe will occur:

- If you drink supermarket coffees from the Big Four (Nestle, Smuckers [Folgers], Kraft, Sara Lee) you probably won't see much in the way of an increase as those brands typically use inferior robusta beans, which are traded on the London market, not New York. And there's no shortage of supply of those rubbery-tasting nuggets.

- If you drink other kinds of supermarket coffees (smaller, niche brands featuring arabica), you probably won't see an immediate hike as the distributors and roasters are still working through their inventories. But you will see one soon.

- If you drink coffee from a local shop who buys from a local roaster that uses C-market coffees, expect to see a price jump between $0.08-$0.15 per cup very soon.  Any roaster that hasn't already ncreased their prices for roasted coffee to reflect the higher prices they're paying for green will be doing so shortly - and those increases will likely be in the 20%-30% range.  They have no choice if they wish to make a profit this quarter.  The only exceptions are those roasters large enough to have locked in large supplies this past Spring as a hedge. But those too will be running out of supply which will need to be replenished with higher priced coffees.

- If you drink coffee from shops like us that specialize in Direct Trade and relationship coffees, it's business as usual.  We already peg our retail prices to individual coffees, not to the market. And as these were acquired via Direct Trade or similar contracts with individual farms, the market fluctuations have no bearing on what we pay.

The upshot is that poorly grown, poorly handled and poorly brewed coffee will soon cost almost as much as the good stuff.