Bumping along with the "C": after living through decades of coffee crises, specialties editor, Donald Schoenholt, offers his sage advice on the coffee market volatility.

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Bette Davis was born in 1908. I've been thinking about her as the 100 anniversary of her birth passes, and of her Oscar-winning portrayal of Margot Channing in All About Eve, Joseph L. Manldewicz' Academy Award winning Best Picture of 1950. I do not know if Davis was a coffee lover, but she was a trouper, and a woman of grit and passion for her work, and we are all going to need some of those commodities in the time to come if independent smaller coffee fee based businesses are going to survive the new reality of a wildly capricious green coffee market.

The "C" contract began to move upward early in the new year. As the market cruised through $1.40 Christopher Schooley (Metropolis Coffee, Chicago, Illinois) asked the Internet's coffeed.com posters, "What are your thoughts?" He was told almost immediately, "Book forward, son," by a veteran west coast green coffee buyer. Nick Cho (Murky Coffee, Arlington, Virginia) responded, "I'd say, it's time for every quality-focused coffee bar to raise prices across the board."

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Fund manager (speculators) are investing in soft commodities including cocoa, sugar and coffee. The coffee business buyers and sellers, including some of the best analysts in the trade as Andrew Gordon (Coffee Holding, Brooklyn, New York) a large contract roaster, and specialty green coffee seller, and SCAA past president Steve Colten (Atlantic USA, New York, New York) a green coffee importer are among the tradesman wondering why the market is not reacting to the fundamental fact that there is enough coffee to sustain the industry, and no particular support for the run up in values we saw in February and March based on the laws of supply and demand.

Specialty coffee is a boutique business, operating along the margins of a very large commodity industry. What we say and do has an impact because media has learned to appreciate our contribution, but as a practical matter the specialty coffee farmers, and their friends in the roasting trade have been struggling for a decade to free their coffee from the cruelty of the "C" contract, and while the trade media has echoed the call, it has not changed things in the larger coffee industry in the real world.

The "C" contract has advanced over a year ago, but the U.S. dollar has lost value against other currencies during that time, implying that goods sold at the farm gate at $1.00/lb. last year may bring less in their own currency at $1.10 this year. Also, an increase in the dollar price, may not affect European buyers as significantly as U.S. buyers, as the Europeans have a currency value advantage. There is a parallel universe idea where the farmer makes out better, and is then in a better position to buy U.S. hard goods at an artificially discounted rate, helping U.S. exports and supporting U.S. jobs. These are all interesting theories, but U.S. consumers are still paying more for coffee.

Roasters who have built relationships with farmers, contracting for coffee when commodity coffee was traded at lower levels, by offering substantially higher than market prices to attract farmer interest and support, and validating their actions with the knowledge that they had contracted for good coffee, and protected their supply chain and raw material costs for a year or two into the future may now experience something new and discomforting. There is a history of farmers wanting to renegotiate prices based on a higher "C" valuation.

Edward Martinez, a Guatemala grower/broker who lives in Washington State, and facilitates direct relationships between independent roasters and independent farmers pointed out in the coffeed.com thread that when the "C" is low the roaster needs to have the grit to stay with its commitment to buy, while when the market is high the farmer must mirror the roaster's fortitude by sticking with his price while producing the quality the roaster has a right to expect. In the current unpredictable environment, direct trade may be a rough row to hoe for both buyer and seller.

Sellers have ways to let their unhappiness be known to a buyer. There have been cases where coffee failed to be delivered, or where the delivered goods did not meet agreed specifications. Intimidated by concerns about damaging hard built relationships, and the knowledge that they need sources of supply next year and the year after may force some buyers for relationship roasters to succumb to price coercion that may substantially weaken their employers' financial position at home. NGO's such as those in the sustainable coffee community may find that their contract co-operatives lose members who believe, with the recent hardship years past, they can do better independently than as part of a commune.

The electronic platform on which the "C" contract traded is a faster track than was pit trading. Trades can now be made by anyone with a laptop; no brokers required. The coffee futures market is just another soft commodity now, traded solely as a financial instrument, and right now it has been generally following the market moves of other similar commodities. So much of the money flowing in and out of coffee trades appears to be from those outside the industry that only a global view of world markets gives us an idea of why coffee is moving as it has. This would be a comfort, except that should the fund managers who have poured money into coffee decide to change their strategy, the market value of coffee could fall seemingly uncontrolled.

We have seen a 10-year high in the "C" contract and then a precipitous fall of 24% in a matter of days. This is happening as the U.S. economy is slowing, and any upscale product category may prove to be at risk in the retail marketplace as the ranks of the affluent thin, and those who have been partaking of luxuries as $4.50 lattes, rein-in spending. There may come a day when consumers asks themselves if they can afford the extravagance of $750-$1,000/year on cups of fancy coffee.

With all our efforts, and all the good we have accomplished in 40 years we have failed to shake the values of specialty grades free of the "C" contract. Market forces including speculation push and pull at values with similar success as they did a hundred years ago. We have effected change in qualities, and delivery systems, packaging and re-created a market platform for sustaining independent roasters that had been washed away in a previous generation, but we are still at the mercy of the vagaries of the larger marketplace.

The Black Frost of 1975 drove prices to unprecedented levels in that generation. The 1997 market peak was followed by a down cycle that saw coffee values bottom and languish there with disregard for our efforts until relatively recently. Now we are in a period of volatility that may threaten all the smaller independent businesses at origin and destination. It is the cycles that jolt and frighten coffee-people and not the comparative price level, as we have proven that we can live with coffee at any level if the playing field is a stable one. The playing field continues as in days of yore to be decidedly unstable. To quote Betty Davis as Margot Channing, "Fasten your seatbelts. It's going to be a bumpy night."

Donald Schoenholt, SCAA Lifetime Achievement Laureate, and old movie fan has been reporting on specialty coffee trends for Tea and Coffee Trade Journal since 1980. He can be found at www.gilliescoffee.com.