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Re: Coffee Wake Up Call
In Response To: Re: Coffee Wake Up Call ()

Hello

On a physicals level, I attribute that to the strength of buyers (major global traders) in comparison to producers (farmers).
World of futures is rather difficult to grasp with all that algo-technical trading, but eventually it gets all back to the product.
So far, small and medium farmers always gained the lower hand... generally, they are busy growing and taking care of their fields, that is their job, not price speculations.
They also mostly do not have facility to store product so they just grow and sell and grow again, thus being naturally forced to accept whatever price is offered at the time.

Global buyers on the other hand specialize in making good deals... I mean good deals for them, which means pushing prices down.
That results in a price fall whenever feasible, and only rise in extreme situations, like weather related issues, when actually no coffee is available.
Either way, farmers get screwed every one time by either low price or low production volume.
But in long term, it can only lead to abandoning coffee and switching to more profitable commodity.. or grouping into sort of unions, growing specialties, change sales route.. and other strategies
I assume production will grow only in low cost countries to degree that is reasonable for them. I think some countries already reached resistance level for volume increase under current prices.
When price is pushed lower again, same process occur there too and production keeps pushed out to countries that can withstand those low prices.
The problem is that there is no other China or Africa where to turn to next. Sure, improved productivity can help, there might still be room for improvement, but there are also new challenges ahead.
In long long term here is no reason why people in one country or continent should produce the same commodity or do similar job for significantly less money.
I am sure that in a couple generations the current state of things will be seen as ridiculous.

IMO, what we see now or in a near future is substantial change of the business model where one side (trade houses) is no longer much stronger than the other one (growers).
New equilibrium shall bring higher prices that reflect actual cost, overhead, profit margin and also inflation adjustments yoy, not just the strength of the buyer.
No one will grow coffee or whatever for internal happiness without making money for a decent living.

JK

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