GCQRI Day One – Peter Guiliano

Unfortunately Ric Rhinehart was unable to make it to the event due to illness, so Peter Giuliano delivered Ric’s presentation and then followed with his own. I’ll try and distinguish the boundaries of them!

General Arabica shortages, market trends (macro)

The key part of the this presentation was a single slide comparing global production and global consumption. Coffee productions seems to run an alternating cycle of high and low production, year on year. Usually there would be a year of excess, followed by a year of deficit which meant that global stores were able to stabilise the market.

As we all know prices on the coffee market are unusually high right now. This is linked to supply and demand. Coffee has not had a year of surplus since 2006, and since then has been in deficit or has met demand. Demand continues to grow and this has resulted in the global stocks being depleted which further results in increased market volatility. The scariest part of the graph was that production met demand this year, but it was on the higher production cycle for coffee. Next year data suggests a drop in production, another increase in consumption and no stocks to make up the missing requirement of coffee. This will result in further price hikes until one of two things happen:

Consumer resistance – when the price gets too high, we’ll start to buy less, and decrease consumption.

Supply increase – with more money in coffee more people will respond by increasing production to meet demands.

It should be noted right now that while this potential crisis presents an opportunity for speciality coffee, many people here hope that it is not our main motivating factor. If it is then it will disappear when the market shifts again and this project requires long term research to really delivery significant rewards.

I will add the chart when I get hold of a digital version of this presentation.

The Understanding Crisis

This was Peter’s own presentation. For this he passed around coffee from Kenya for us to smell. The reason was to highlight the blackcurrant note that is found in Kenyan coffees and highly prized.

This particular coffee had sold for $6.50/lb through the auction system. The price was so high because, despite the strong preference for blackcurrant in Kenyan coffees, coffees like this are becoming harder to find.

While, through anecdotal evidence, we believe this flavour comes from the SL-28, or from particular washing techniques – we have no solid evidence of this. Anecdotal evidence also says that not only is the frequency of this flavour diminishing, so is its intensity in coffees that exhibit it. It is, in Peter’s words, “an endangered species of flavour”.

The talk really highlighted the importance of understanding in coffee, and the value of this kind of knowledge in the future.

8 Comments

  1. are current high prices not also reflective of an expected shortfall next year, and fear of/expected higher price – therefore prices could still drop even if production is low as larger buyers will be using up earlier bought/traded coffees?

    Historically do prices always go up when production is lower? or has held green stock always compensated?

  2. Very interesting.
    Even though 6.50 is high for the action I feel it isn’t a particularly high price for a top Kenya lot. Those aren’t in general high compared to CoE action winners. Did Peter talk about the switch in Kenya from SL varieties to Ruiru-11 that many farmers are making? My understanding is that this is happening because a lot of farmers have experiences being paid (pretty much) the same for so long that they don’t believe better tasting varieties can make up for the lower yield of cherries those varieties have. Keep up the good work on posting!

  3. There have always been fluctuations in the market, and the laws of supply and demand will always apply – regardless of what outside factors we try to use (the old ICO quotas being an example).

    The price is high right now for a few reasons, including market manipulations. I don’t think we’ll know the impact of next year’s crop until we actually have it harvested.

  4. I would agree on that – though it is certainly much, much higher than 2 or 3 years ago for a coffee of similar quality.

    Peter didn’t talk about coffee farming in Kenya – as a side note note I would be interested to see how varieties like Batian turn out when producers who are good at what they do, and high quality milllers, do their best with them. It doesn’t help that we have no proof whatsoever that SL-28 is definitely better. (No definitive proof so to speak).

  5. James, thank you for your excellent reportage. I cannot adequately express my dismay at not being able to be there for this critical event. I did want to point out something significant in the presentation that I was not able to give but that should be of particular interest to this community. That is while normal supply and demand economics will apply to the broad coffee market, and have, there is little or no differentiation for quality on the commodity level. Buried in those 9 slides was the real story facing us…washed Arabica production is slowly declining in real terms and dramatically declining as a percentage of the total supply of coffee in the world. So while the world’s supply of coffee has increased by thirty million bags or so over the last twenty years, essentially all of that has been robusta or natural arabica. Do not take this to mean that there are not great naturals that we can regard as specialty products, but rather that the vast majority of specialty coffee, including all of the Kenya that Peter referenced, is washed arabica.

  6. Hi Ric – hope you’re feeling a bit better!

    To be fair to Peter that point was actually in there – I just didn’t do a very good job on the notes and the digesting of it all. A mixture of overwhelming and quite terrifying!

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