Some Knowledge

I’ve just been trying to look up how the coffee crop is doing this year.  It seems the production of coffee is up in Colombia and Brazil.  What I learned is that coffee goes in cycles.  There will be a year of short harvests, like last year, then a year of big harvests.  I did not see too many definitive reports on the harvest, though, just short blurbs.

I’m pretty certain that the consumer price of coffee is not going down with the increased yields of this crop.  There are a lot of transportation costs associated with this product, and the cost of transportation is always going up.  There is also packaging and processing costs associated with any commodity.  You have to clean and roast coffee.  You have to grind it up and put it into those cans.  Then there is the markup for the wholesaler and the retailer.  There is a whole chain of command in getting any product to your local store.

I looked at one site that was a breakdown of the commodities market in cocoa, coffee, sugar, and oranges.  This site was designed for people investing in commodities.  They did not seem happy that the price of raw material for the commodities industry was going down.  I don’t know about people who have this outlook.  It seems they would be pleased if the crops had a bad year and the prices went up.  Isn’t that the whole rationale behind investing in commodities?  You buy stocks of something in a year when the prices are low, and hold onto them waiting for a bad year when you can sell your product for a profit.  I’m surprised that people invest in food this way.

When you store food items, they do not necessarily get better with age.  Wine might be an exception to this principle.  Still, you would think there would be more trading in wine if this were the case.  You might buy wine in the year it was produced, and store it in a warehouse waiting for it to age and improve.  Then you would sell it for a profit.  Maybe the wine market is too small for people to trade heavily in it.  Maybe the wineries do this themselves and get the profits.  I don’t even know if wine improves with age.  You’d think the flavor molecules would break down after long enough on the shelf.

In any case, there will be more coffee available in the world this year.  This is probably good for the retailers.  Their costs will go down slightly.  With inflation and the weak dollar, it’s pretty certain that the price of coffee for the consumer will just go up.  What gets me is that the farmers who grow this stuff are not really making more money on their work.  The price they get for their goods is determined by the commodities markets.  When production increases, prices drop.  So, the farmer has to do more work to get basically the same amount of money.  You might think they would be better off with a bad crop and higher prices.  The market sometimes makes no sense.