Coffee's cheap right now, and you should be worried
In the last 3 years coffee prices have gone from near-historic highs in 2011 to near historic lows today.
Attention latte lovers, Folgers fanatics and espresso enthusiasts, your favorite cold weather beverage is getting cheaper. Coffee prices are near historic lows. Great news, right? Turns out, it’s not. To learn why, I headed to a large waterfront warehouse in Brooklyn’s Red Hook neighborhood to talk with Ed Kaufmann, director of roasting for Joe, a chain of specialty coffee shops.
He started me off by showing me his coffee roaster, which resembles a large, stainless steel washing machine. Through a small window, you can see cream-colored beans from Mexico being roasted to a deep brown.
"The beans we use are seasonal. We have coffees from Central America and Ethopia and now we’re transitioning into Papua New Guinea, Peru and Colombia, " he says.
Coffee is the second most traded commodity in the world after oil and the price of coffee beans has been on a wild ride: In 2011, coffee hit $3 dollars a pound, a 14 year high. Since then, the price has dropped to less than half that, near historic lows. But that doesn't mean coffee shops like Joe change the price of your morning macchiato every month. "We can’t really fluctuate our prices with the fluctuation of the market," says Kaufmann. "Coffee drinkers are very sensitive to increases in prices."
So, when prices rise, Joe tightens its belt, cutting travel and staffing. When coffee prices drop, staffing and travel get beefed up and Joe uses fancier beans.
But when the prices drop as much as they have recently, it only sets us up for another spike. "Coffee prices are now at such a low level that farmers are losing money," says Ross Colbert, a global beverage strategist at Rabobank. "The risk here is that farmers will replace coffee with other crops."
That could create a shortage of coffee and cause prices to rise. Add speculators and an increasingly global market to the mix and the price fluctuations for commodities like coffee become even more extreme. "The price of a crop rises, so the farmers say, 'I want to plant more of that crop.'" says Andrew Burns, economist at the World Bank. "Supply increases substantially and rather than the price falling to that equilibrium position, it actually falls way past it."
To cope with these wild swings, Joe’s Ed Kaufmann is working on drawing up contracts with growers. "We’re hopefully going to be able to lock in prices and work outside of the fluctuating market," he says. Kaufmann hopes the contracts will mean the price is right for him to get the quality beans he needs and for farmers to earn enough to keep our cups full.