Tips For Navigating A Volatile Market

Over the last few months, roasters around the world have been left reeling from the sudden surge in coffee prices.  For roasters who have been buying coffee for less than a decade, this likely feels like a unique crisis.  However, for roasters who have been buying coffee for a longer period of time, it may be a reminder of the cyclical volatility that is inherent in the coffee market.  As the markets respond to extreme weather, global inflation, and rising demand coffee prices have rose to levels never seen by many coffee buyers in the industry today.  Here are some tips to help make your coffee buying more resilient and market-resistant.  

Know Your Risk Exposure

Speaking to roasters, it is clear that this recent market volatility has had a wide range of impacts on coffee roasters.  Roasters are learning the hard way how exposed to risk their coffee program really is.  The first question to ask is "how exposed to risk is my program".

• What percent of the coffee you purchase are contracted on differential pricing?
  •  Differential priced coffees (diff+C market) are directly tied to the volatility of the market and should be seen as coffees at high risk for price swings
  • Flat priced coffees are not tied to the market and are more influenced by changes in cost of production.  These are at low risk for price volatility.
  • In you are unsure if a coffee is differential priced, an easy way to tell is if the price of the coffee has changed over the last 3 months.  If it's changed, it's tied to the market.  If it hasn't, it isn't.

The next big question is, "how much risk can my coffee program handle?"

• How flexible is your product pricing today?
  • If coffee prices change, can you change the pricing to your end customer?  Or, are you locked in with contracts at set prices?
• How flexible can I be to hit growth goals?
  • Do you have your eyes set on large wholesale accounts that require price stability and longer term pricing contracts?  Would price changes put your accounts in jeopardy?

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Reduce Risk

​Once you understand which of your coffee purchases are at high risk for price volatility, the next step is to reduce risk by exploring which of those coffees can be transitioned to purchases with flat priced contracts.  

Not all coffees can be easily switched from differential priced contracts to flat priced contracts that are not tied to the C-Market.  Producers in countries like Brazil and Colombia have strong ties to selling on the C-Market.  As roaster demand grows for flat-priced coffees that are not tied to the C-market, more producers are expressing interest in the idea.  Just as roasters stress over the volatility of the market, so do producers.  When markets are low, producers find themselves running up debt on their farms to make ends meet.  When markets go high, those additional funds end up being used to pay down that debt.  

To learn which coffees can be purchased as flat priced contracts, check with your importing partners.  Financially sustainable flat priced coffee is at the heart of the Hacea Coffee Source ethos.  

Plan It Out Early

In order to accomplish your coffee goals, whether it is coffee at a certain quality or a certain price, time is essential.  Once you know what you need, communicate it to your coffee importing partners.  By communicating these needs ahead of time, your importing partners will be able to negotiate coffee prices on your behalf.  Even if you are a small roaster with a low volume, your importing partner can combine your needs with larger volume roasters so that you can benefit from volume discounts with producers.  

Schedule time with your importing partners in January or February to discuss needs and options for the year.  This is the time when importers will begin communicating with producers on needs and pricing.  At Hacea, we also have a series of green coffee planning resources to share with you to help you through this process.

Strategize Risky Buys

If you have to buy a coffee that is tied to the C-Market, be sure to have a strategy of how much to buy and when you are going to buy it.  One strategy, shared from the buyer of a very large roasting company, is to buy small amounts as needed when the market is high, and then when the market dips down, buy a bit more.  When the market is highly volatile, make larger buys when the market puts the coffee at your target price point (or below).  When the market puts coffee above your target price point, make smaller more frequent buys to spread out risk.  Whatever your buying strategy for these coffees is, it's paramount to talk to your importing partner about it and get their opinion.  They may have additional information about the market or about supply/availability of the coffees that you are looking for.

Know The Value Of Your Time

Whenever you are deciding on how to approach your coffee buying needs, you have to know how much time you have available to invest in price discovery and market monitoring.  Watching the market and soliciting offer lists from various importers is incredibly time consuming.  Each roaster must really ask themselves, "Is this really worth my time?"  Roasters typically wear many hats, including buying, quality, maintenance and sometimes even barista or delivery driver.  If watching the C-Market and finding spot coffee aren't how you want to spend your time, lean on your importing partners to assist with your green coffee planning and sourcing.

The Hacea Team Is Here To Help.

The team at Hacea Coffee Source is experienced with green coffee planning and buying strategies for roasters of all sizes.  Each member of the Hacea team is available to help roasters review needs, assess quality options, and build a strong coffee buying program. Our goal is to help roasters focus on making incredible coffee, rather than sitting at a computer trying to keep up with the commodity markets.