How does a Brazilian harsh winter affect my Leuer Trading Company Coffee when it is sourced from Guatemala?

This is a fantastic question and definitely an understandable one considering the circumstances.

To get into this we need to understand 3 things:

1. Brazil's place as a global coffee producer

2. What is the C Price?

3. Where Guatemalan coffee falls in all of this.

Brazil is a country with a land mass of over 3.2 million square miles with 600 million acres of that being arable land. To put that into perspective the state of Texas as whole only has an area of 171 million acres. Brazil can fit over 3 Texas states in just the land that it deems safe to farm.

In other words, Brazil is huge and with that comes lots of commodities and crops.

Over the last few years Brazil has solidified itself a global leader in crop production. According to Global AgInvesting, a group that provides investors and agribusiness operators with actionable, strategic market intelligence in areas such farmland and infrastructure assets, private equity opportunities, sustainable and impact investing, food production and agriculture technologies, Brazil is the largest producer of soybeans, coffee, and sugar, as well as the second largest overall food producer on the planet.

On July 21st, 2021 there were reports of a sudden cold snap in the heart of the Brazil's coffee belt. This cold snap froze millions of crops and caused the global coffee rate (C Price) to rise 13% in a matter of hours.

What is the C Price?

The Intercontinental Exchange (ICE) is a major commodities exchange based in New York City. The trading price of Arabica at ICE is known as the C price, and it is this figure that affects the price of coffee. All coffee is treated as one raw material, regardless of origin or other factors. Even specialty coffee prices are usually linked to the C price, with an added premium.

Just like any commodity its price depends on supply and demand in the market. As we all know coffee is must have and while prices go up its demand always seem to stay the same. As the supply goes down and demand remains the same, we get an increase in pricing.

But why can't it just stay the same when I am not getting it from Brazil?

In short, this has everything to do with commodity speculators and institutional investors. Because coffee is traded as a commodity, its traded on the futures market. This means that investors and speculators can bet or hedge their money on the future sell of a coffee harvest. If the speculators or investors see a weak harvest, then they will assume that in the future these prices will go up. They then go and purchase future contracts for the commodity at today's price. This locks them in at a certain rate so when they sell in the future, they make money.

This technique is not a secret and there are thousands of institutions making money on the commodity market.

Guatemalan Coffee

While coffee is a major Guatemalan export, its pricing is at the mercy of the C-Price that is set by global production amount rather than the country production amount. According to the USDA Foreign Agriculture Service over 300,000 families depend on coffee farming as their means of income and credits coffee as the major catalyst for economic growth in rural areas, as 20 out of the 22 departments produce coffee.

Guatemalan coffee is one of the finest and best tasting coffees in the world. Because it is so sought after it must trade on the world market and it must play by the rules that all the coffee producers adhere to.

This increase in price is a combination of global crop shortage, Covid-19 and increased shipping costs that have been implemented by parcel service companies.

Back in 1994 Brazil had another freeze that surged prices. This surge floated until the early 2000s and dipping before seeing a second surge in the early 2010s. These surges and dips are not rare and happen quite often. When we love coffee as much as we do it is just part of the game. Let us do all the thinking for you when it comes to picking the best coffee. We will ensure that the coffee you get sent to your door, with free shipping, is the highest possible quality that you can spend your money on. Give us a taste, we know you won't be disappointed. LeuerTrading.com