We've always been told that coffee is the country's main export, the source of income for a large majority of our farmers, and what Colombians represent to the entire world. We've also been hearing in the news for years about the fluctuations in coffee prices, the price of a bag in dollars and pesos, and many other economic indicators surrounding a cup. And surely the people who trade coffee beans produced around the world every day do so while accompanied by a cup of steaming black coffee.
It's time to understand all these indicators and learn how the value of grain is determined in the stock markets. , so to begin to understand how price is determined, it is important to define some basic financial terms.
The concept of a market: This is based on the fact of exchange, where a buyer and a seller are clearly necessary. There are different markets, including financial markets, which are aimed at investment, allowing savers to earn a profit by lending their money. These financial markets include capital markets, foreign exchange markets, and financial derivatives markets. Within derivatives, we find the category of futures, which basically involves purchasing a product in advance at a predetermined price. Futures includes coffee. In short, in the futures market, coffee crops are sold before they are harvested at a market-defined price.
Now it is important to understand where the markets are developed, for this it is necessary to have a financial institution endorsed and constituted within each country, these entities are known as stock exchanges. Around the world there are hundreds of stock exchanges , but only in 3 of them can the currencies be traded. coffee futures, the Brasil Bolsa Bancao, the Intercontinental Exchange Europe and the Intercontinental Exchange in New York.
New York is the main coffee futures market, traded under the Coffe C contract, the global benchmark for Arabica coffee. It stipulates the physical delivery of green coffee beans from 20 different producing countries with export licenses to the US and Europe.
But do you want to participate in the futures business? Two types of participants are involved in this business: investors and hedgers. These are typically companies that use financial derivatives to minimize price risk, protecting themselves from drastic fluctuations. On the other hand, investors are those who bear this risk in order to generate greater profits. All of them are necessary, given that the greater the number of market participants, the greater the short-term liquidity. Another participant in this business is the stockbroker, who is the person authorized to act as an intermediary in the purchase and sale of financial products.
But then, how is the price of coffee calculated?
In Colombia, when a coffee grower brings his coffee It is calculated based on the value per pound on the New York Stock Exchange. This value can be increased or decreased depending on the quality or certifications the bean has. From this value, milling, packaging, and logistics costs, among others, must be subtracted. The bean yield factor must then be calculated, and finally, the conversion to Colombian pesos must be performed. Clearly, this is a process for regular coffees; specialty coffees have greater negotiating power due to their quality and yield.
Although this is the way coffee growers set prices, the market has other ways of doing so. In the direct market , buyers and sellers set the price based on supply and demand. In the intermediate market , one of the players is a financial institution that acts as an intermediary to set the price. In the auction market , buyers and sellers make offers based on the prices at which they are willing to buy or sell. Exchanges operate the auction market through electronic systems, through which buyers and sellers with shared prices connect.
What is the value of my cup of coffee?
Every morning we get up to have a delicious cup of coffee and when we know all the processes that coffee growers go through to produce it and the possible offers that could have been had to take these select beans to a more distant place, we understand the true value of being able to enjoy the best of our Colombian coffee, experience all the flavors and discover a taste that is priceless.