At first glance, coffee trading follows a simple formula: buy beans, sell beans. In reality, there are finer details that make the process a little more complicated.
Here at DR Wakefield, we strive to provide our roasters with the highest-quality beans all year round. To fulfil that desire, there are plenty of factors we have to consider behind the scenes – including these five elements of the process.
1. Buying forward
Buying forward is prevalent throughout the coffee supply chain. In fact, it’s how we obtain coffee from our own suppliers. But what exactly does it involve?
Essentially, ‘buying forward’ constitutes a legally binding contract between trader and roaster, where a roaster can secure a particular coffee in advance for a fixed price. The benefits of this arrangement are manifold, including effective budget management, consistency of stock, and the potential for exclusivity over a particular lot.
Of course, future demand is tough to predict, meaning that pre-bought stocks often have to be supplemented with spot purchases. Moreover, buying forward requires that you’re at least somewhat au fait with your typical requirements. It might not suit the roaster who’s still finding their feet. Nevertheless, the perks remain strong, and it’s worth considering whether such an arrangement might work for you.
From farm to cup, coffee production is a long and arduous journey for a bean. Before the green coffee even leaves its country of origin, it has to be dried (this can take several weeks alone), processed, and then left to rest for anywhere between 30 and 60 days before shipping.
Shipping itself can be hindered by numerous hurdles, including the time taken to reach an ocean port, limited space aboard the vessel, and unfavourable weather conditions during transit. Even with plain sailing, the sheer distance over which the beans have to travel can add days to the process.
Furthermore, the 20-foot ‘dry containers’ used to ship the beans have to be thoroughly inspected for moisture, chemical stains and foreign odours before the coffee is packed. While these checks are important for preserving bean quality, they can also significantly impede the journey time.
What does this mean for you? Well, if you’re looking to buy coffee on a seasonal basis (and you probably should be – more on that below), then it’s important to factor in the time between a cherry ripening in Guatemala and a bag of Palencia San Guayaba landing on your doorstep.
Luckily, we make it our job to keep a tight rein on the shipping and delivery of our beans, leaving you free to concentrate solely on which varieties you want and when.
Green coffee is at its peak quality when it lands in the consuming country. From then on, it’s all downhill: the beans take on moisture from the atmosphere, and fatty acids within the endosperm begin to oxidise and turn rancid. The upshot is a bean that emanates woody tones upon roasting.
While some people enjoy this so-called ‘past crop’ flavour (and there are brands that specifically cater for this inclination), it can serve to blunt the differences that would normally distinguish, say, a tartly acidic Kenyan from a subtly sweet Brazilian.
The solution is simple: avoid storing green coffee for extended periods of time. This means buying the coffee as soon as it’s harvested (or buying forward), getting it shipped quickly, and then using it within 4-6 months of arrival.
Of course, harvest time and yield are at the mercy of Mother Nature. A good rule of thumb is that northern origins (i.e. Central America) come into season around mid-spring and last until early autumn, while those south of the equator (Bolivia, Peru) last from mid-autumn until early spring. Countries that fall directly on the equator (Colombia, Kenya) typically enjoy one-and-a-half to two harvests per year.
This seasonal overlap ensures delicious coffee all year round, but it requires working with different farmers at regular intervals.
4. Price of acquisition
The problem with putting a price on coffee is that ‘coffee’ is not a single entity. Each variety has a distinct profile, and with that comes a unique value. This is predominantly shaped by the usual market forces, such as supply and demand, product quality and availability, and the relative strength of an origin’s currency against the USD.What’s more, coffee is very subjective – meaning that one trader may value a coffee much higher than another, because his market allows it.
The International Coffee Organization (ICO) in London brings some order to the chaos by grouping comparable coffees and calculating average prices for each group. These ‘indicators’ are published daily and make it possible to track the ongoing performance of different varieties. The ICO also makes predictions about the availability and demand for a particular coffee in the future. While this generally works well for main grade commodity coffees and helps to provide some direction, specialty and gourmet coffees are different. For the latter two markets, price determination does not rely on New York Futures markets or other external factors – instead, prices are primarily calculated using more sustainable pricing models designed to provide a solid, dependable and mutually agreed income for the producer.
By looking at the difference between the prices of today and tomorrow, coffee traders, like us, are able to gauge the risk of investing in a particular variety so you don’t have to.
Brazil leads the world in coffee production, exporting about one-third of the global supply. It should come as no surprise, then, that Brazilian coffee comes in many forms – and these offer different degrees of traceability.
At the generic end of the scale lies commodity coffee. This could come from any of the country’s 220,000 coffee farms, providing that it meets certain grading criteria. Obviously, traceability at this level is limited to country of origin. Next in line is regional coffee. Again, this can be derived from multiple sources, but this time they’re confined to a specific area (Cerrado and Mogiana are particularly sought after examples).
Zoom in a little closer and you’ll find the single estate coffees. As the name implies, each of these is a blend of a single farm’s annual output. In other words, they’re traceable to an individual producer, enabling you to put a face to the bean. Single estates can then be further refined to reveal microlots, where a farm is divided into specific taste profiles or harvest dates. Finally, maximum traceability is offered with nanolots – down to a single varietal, or even a particular plot of land (perhaps one facing a different direction from the rest of the farm).
It’s up to you to decide which level you desire, but with the rising demand for transparency from cup to crop – particularly in the specialty coffee market – it might be worth considering a niche that extends beyond country of origin.
Gained any new insights? There’s more where that came from. Watch this space for regular news from the coffee trading industry, including insider perspectives, and follow us on Twitter, too.