The global coffee supply is in danger of taking another hit, and this time, it’s one of its own making. With draught, unexpected frosts, and shipping shortages hampering export of Arabica coffee out of Brazil, the price of the commodities market has shot up, and Colombian farmers are defaulting on their deliveries in order to sell their crops at the new, higher price.
As reported by Reuters, Colombian farmers have withheld delivery of nearly one million bags of coffee this year, equaling roughly 10% of the total output for the world’s second-leading producer of Arabica (behind only Brazil). Currently, the price of coffee on the C-market is hovering around $2.14 a pound, over double the price from the same time last year.
Many of the agreements for these purchases by large coffee exporters were made earlier in the year when the price was significantly lower, but with a supply shortage driving up the price, farmers are looking to capitalize. Per Reuters, Colombian producers state that they will deliver their crop later “this year or next,” but many buyers remain unconvinced. This has led many global traders to write these defaults off as losses “rather than wait and risk even bigger losses if farmers still don’t deliver next year and prices rise further.”r
One senior trader tells Reuters that they are “looking at losses of $8-10 million each on undelivered coffee.” Meanwhile, the National Federation of Coffee Growers of Colombia, “which represents farmers but also accounts for 20% of the country’s 12.5 million bags of annual coffee exports,” is expected to lose even more.
If Colombian farmers continue to hold out, the price on the C-market could continue to spike, and coupled with ongoing production struggles in Brazil, one traders see the possibility of the price jumping up past $3.00 a pound, at least temporarily.
In the meantime, traders are having to circle the wagons. Some smaller exporters risk going bankrupt while others that remain in business may have to buy spot coffees at a loss in order to fulfill contracts made with roasters worldwide.
I must admit that I’m ultimately unmoved by the plight of individuals profiting of the exploitation of coffee workers by adhering to the artificially and immorally low price of coffee on the C-market. Now that price has swung and they are being hoisted by their own petard. If we paid farmers based on what their output was actually worth and not some manipulated speculations, this probably could have been avoided.
Zac Cadwalader is the managing editor at Sprudge Media Network and a staff writer based in Dallas. Read more Zac Cadwalader on Sprudge.
