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Price Bands--Back Then And Now

1977, the market saw its first true spike on the hyper bull run up to 338.50 cents per pound. It was never matched again. The 1985-86 drought spike to 276.00 gave way to Coffee Options--at least it is my understanding that they were born because of that and right after. Perhaps some of the floor broker wizards here can shed more light.

Anyway, $ 3.38 per pound made many producers rich that year. Wages were low, inputs were cheap, and profit margin was unbelievable. An International Coffee Agreement was made, to keep prices reasonable between $ 1.20 and $ 1.40 per pound. Prices were to be fair to both producers and consumers. Alas, the price was still good and provided for a good profit in the 1980's. Aside from the drought scare, the industry clearly noted increased interest in huge production even at those price levels (30 years ago)!!, and put tremendous pressure to undo the agreement. They succeeded of course, and prices plunged to a low of 48.50 cents per pound in 1993. I remember back then we did not want to harvest the coffee because harvesting it off the trees cost much more than what the end producer got after milling costs. In reality, the less coffee you harvested, the lower the losses. But losses none the less. The boom cycles after the 1994 frosts to 2.75, and then the demand based boom cycle to 3.18 in 1997 (which was also a delayed effect of the frosts losses), led to massive overproduction again and took the market on a tumble bust cycle--this time to below 40 cents a pound. need not repeat the hardship imposed on growers, this bust cycle being lower than the previous 8 years later in 2001. only the most efficient survived. In some countries that sealed the fate of the culture forever.

That was back then. Now, anyone notice us trading in the old ICO band between 1.20 and 1.40 or thereabouts ? fairly stable. The coffee world now has Vietnam. Other countries are being "helped" by the industry to increase their production. We now have countries that are willing to work from sun to sun for a plate of rice. And of course the industry is now making top dollar on the business end.

Where do we go now ? it would seem that at this rate, coffee will still most times be trading between 1.20 and 1.40 for the next ten years.

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Price Bands--Back Then And Now
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