Are Current Green Coffee Prices Unprecedented or Just Unusual? | Extra Shot Ep. 9

Episode Summary
In this informative audio blog, Mike Ferguson offers his coffee pricing analysis and delves into the dynamics of green coffee pricing, exploring whether recent price movements are truly unprecedented or just part of a broader trend. He offers an in-depth examination of historical pricing patterns, the impact of inflation on coffee market costs, and the psychological factors influencing consumer price perceptions. Ferguson emphasizes the importance of understanding these elements in the context of the coffee market and underscores coffee's enduring status as a key commodity.

Episode Notes

• Current green coffee pricing reaches all-time highs in nominal terms.
• The term 'all-time high' can contribute to unwarranted consumer concern.
• Inflation plays a pivotal role in shaping coffee pricing discussions.
• Historical coffee pricing analysis reveals that coffee has withstood various economic challenges.
• Green coffee price trends often differ significantly from general consumer price movements.
• Specialty coffee roasters frequently face challenges in adjusting their pricing strategies.
• Consumer expectations for coffee prices vary distinctly from those for other goods.
• The coffee market has experienced significant price fluctuations throughout its history.
• A strong grasp of inflationary trends is crucial for all coffee industry stakeholders.
• Despite market volatility, coffee has shown a remarkable capacity for recovery and stability.

“Just like last time, it’s unprecedented.”

_{Caption to recent New Yorker cartoon by Shannon Wheeler}

You can accuse me of playing tomayto, tomahto if you want but in fact the current price of green coffee as reflected in the C-Market is only “unprecedented” in terms of nominal or actual dollars, without adjusting for inflation. Unprecedented means something has actually never happened before. In nominal dollars, the c-price for green coffee did indeed become unprecedented on December 10, 2024, when the green coffee market price closed at $3.47. The previous record was set on April 14, 1977, when the market closed at $3.37. This “record setting” might make for a good headline but the comparison itself is virtually useless in terms of what it means to those of us who buy and sell coffee in the real world, even if the fact of the price couldn’t be more meaningful.

As challenging or seemingly insurmountable as a market over $3.50 might be, I don’t think it’s helpful to mislabel a thing as unprecedented when it’s really just rare. To me, the word ”unprecedented” over-communicates a sense of uncertainty and uncertainty is difficult to manage at every level, from the operational to the emotional. The word “unusual” holds within it the idea that we’ve been here before and survived. And when we account for inflation while looking at the cost of green coffee, it turns out we have been here before and, as it so often has over hundreds of years, coffee survived.

Let’s talk about inflation.

In 1977, $3.37 would get you a gallon of milk, a loaf of bread, a dozen eggs, a gallon of gas and a postage stamp, and you’d still have enough left over for two gumballs out of the gumball machine on your way out of the store. Today, that little outing will cost you around $14.00, not including gumballs. This also means that the C-Market price for green coffee would need to go well into double digits, $17.40, for us to be in truly unprecedented territory for the C-Market era. For the last half of 1977 the C-Market averaged an actual dollar price of $2.65. For us to share in that experience today, the market would need to average $13.72 for six months.

Adjusting for inflation, the average annual C-Market price has exceeded $3.50 for 17 of the last 52 years. Using this wide-angle lens, it might not even be fair to say that current green coffee prices are unusual. They're just...I don't know, in the minority? However, only two of those 17 years have occurred in recent-ish memory, 1997 and 2011, meaning this is a completely new experience for many if not most specialty coffee roasters.

We shrug off the fact that a gallon of milk cost around $1.50 in 1977 but costs around $4.00 today because we understand, even if it’s just on some intuitive level, that this is how the world works. The price of eggs might fluctuate dramatically over weeks or months, but prices inevitably and ultimately climb over the years. It’s just a fact. Or is it?

On July 6, 1979, coffee closed in New York at $2.15.

On May 12, 1986, coffee closed in New York at $2.15.

On October 5, 1994, coffee closed in New York at $2.15.

On April 21, 1997, coffee closed in New York at $2.15.

On December 16, 2011, coffee closed in New York at $2.15.

On October 8, 2014, coffee closed in New York at $2.15.

On May 12, 2022, coffee closed in New York at $2.15.

On April 11, 2024, coffee closed in New York at $2.15.

These amouts have not been adjusted for inflation. Those are all actual dollars, so donde esta la inflación? 

I’m going to ignore that economist in the back of the room raising their hand, eager to explain that I don’t actually understand how the world works, because here is what I do know: While most if not all of the costs around producing coffee and just living life anywhere have gone up over any number of years you care to examine, the floor-price for green arabica coffee has barely budged and has certainly not come anywhere close to keeping pace with inflation. 

And before anyone in the back of the room starts telling me about yada yada yada commodities, let’s have a look at some. 

Calculating off a 52-year trendline, the futures market price for lumber has gone up approximately 400%. The futures market price for oats has gone up 230%, wheat has gone up 165%, soybeans 154%, corn 137%, and sugar 60%.

Over the same period, August 20, 1973 to January 29, 2025, the futures market price for coffee has increased around 15%. 

But hey, we are beating cotton, where the future market price has only increased something like 7% over 52 years. 

As I write this, the C-Market has had 11 unprecedented days in terms of nominal price, but the average green coffee market price in the weeks since the market broke $3.00 in late November has been around $3.25. If we push this price back over 30 years (when perhaps 90% of specialty coffee roasters started doing business) and adjust for inflation against the actual price of green coffee (see chart) the most obvious fact is that the price of green coffee has often run contrary to the other costs of doing business. But on a few rare occasions we’ve experienced price circumstances similar to those we are experiencing right now. (Note, I am updating these numbers as the market changes in the footnote at the end of this article)

Using annual average green coffee prices over 30 years to reflect prices sustained long enough to have a significant impact on business, we experienced similar conditions to what we’re experiencing right now for around 170 trading days in 1997 and 200 trading days in 2011. (Note, I am updating these number as the market changes in the footnote at the end of this article)*

Push back 52 years and we are no longer talking days, we’re talking years. Adjusting for inflation, the coffee industry has lived with average annual prices that were higher—significantly higher in many cases—than what we’re experiencing today for a total of 17 years. Seven. Teen. Years. About half of those years we are talking about relative prices that were higher in increments of dollars not cents.

Chances are this is ancient history to most people reading this—about 9 out of 10 is my educated guess—but it’s not irrelevant. These are years when the foundations of the specialty coffee industry were laid. From the day that Erna Knutsen, as a woman, was finally “allowed” to take a seat at the cupping table in 1973, to the first founders meeting of the Specialty Coffee Association of America in 1983, the annual average C-Market price for coffee adjusted for inflation ranged from $4.15 to $12.08. 

Veterans of those years might remind us that the equivalent of $4.15 (65 cents in 1974) was high but not whacky. As I’ve written elsewhere, for 200 years, adjusting for inflation, a $3.00 floor price for a pound of green coffee has been more normal than not. From 1976 to 1980, when the relative price ranged from $6.00 to $12.00, those were some whacky prices.   

This is one of the reasons it is so important to talk about inflation when talking about coffee prices. If $3.00 has long been the psychological green coffee price boogie man, then $4.00 would be Freddy Kruger. Except they’re not. Relatively speaking (i.e. in every way that matters), these prices have happened. The market has spent a relative 14 years above $4.00 in the C-Market era. Another reason to talk about inflation when talking about coffee prices is that it forces a question. What are the incentives around producing coffee in a market that has been functionally flat for over 50 years? Real-world prices might not be something to celebrate, but they can be acknowledged as not-the-matrix.

I was working in the coffee roasting sector in 2011 when the price environment for roasters, adjusted for inflation, was the same as it is today for most of a year. I can tell you that cost cutting among roasters was painful. I can also tell you that price increases for their customers were late in coming, fear-based, and wholly inadequate. In my experience and in my opinion, one of the most significant failures in business acumen among specialty coffee roasters is the failure to raise prices in concert with the cost of green coffee or, often, the price of doing business in general.  

By artificially keeping prices perpetually behind, and then not keeping pace with, sustained shifts in the market, we don’t do coffee drinkers any favors. By distancing them from the fact that they consume an agricultural product subject to the whims and wiles of nature as well as the effects of geopolitics and social upheaval, we condition coffee drinkers to have price expectations that they don’t have for eggs or milk or fruits and vegetables. They expect prices for these items to fluctuate, perhaps wildly at times. They expect the price of their coffee to remain relatively stable. They shouldn’t. 

Raise prices. I mean…dang it, raise prices.

Contrary to popular belief, wishing the curse of “interesting times” on another person has western origins and is not ancient. Most times are considered interesting times, for better or worse, by at least some of the people living through them. Interesting times can mean many things but the list includes, necessarily I think, unusual times. And as difficult as unusual times might sometimes be, inherent within them, necessarily I think, is another saying that does not have western origins and is ancient: This too shall pass.

Which is not to say that the C-Market is going to return to that stretch of time that too many roasters came to understand as normal, between 2014 and 2021 when coffee traded below $2.00 for over 1700 trading days in a row. I have no idea if the market is going to go up or down or sideways. I do mean to say, however, that coffee survives. Coffee survives.

And if you’re really in the mood to hurl a curse on another person, wish for them that they live in genuinely unprecedented times. In the scope of history, very few happenings are truly and objectively unprecedented. When events are absolutely and undeniably unprecedented beyond hyperbole, they are almost always profoundly disruptive in a fundamental and structural sense from which recovery or return is uncertain. On the other hand, we might more often admonish our friends, comrades, and colleagues with the following hope: “May these interesting times be merely unusual.”

*$3.25 was the average price from November 22, when coffee first broke $3.00, to January 29, when I originally wrote these two paragraphs. If we change this range from November 22 to April 1, the average price is $3.58 which, correspondingly, changes the number of trading days over the last 30 years when prices were the same or higher than they are right now for a sustained period to 99 days in 1997 and 125 days in 2011, adjusted for inflation. It should be noted in terms of specific prices, when coffee closed at $4.31 on February 12, that was a price we have not seen since 1986, even when we adjust for inflation.