Only days after the World Trade Center collapsed on top of the evacuated New York Coffee Exchange, obliterating the most important coffee auction in the Western Hemisphere, traders moved into backup office space across the East River and quickly put the exchange back in business.
At first, all was not well. Trading was limited to just 90 minutes, and the low ceilings in the building that is the exchange's temporary headquarters make the trading pits as noisy as the elevated subway that rumbles overhead in Long Island City, Queens. But order was restored with impressive speed, and contracts for most of the US$18 billion of coffee consumed annually in the US were bought and sold at the same volume as before.
Trying as it was, responding to the crisis in the coffee exchange may have been the easy part of handling the crisis in coffee.
The price of raw coffee -- in decline for several years -- plummeted to a record low last week. The fall has been dizzying. Futures contracts on the coffee exchange, the benchmark for prices around the world, had been as high as US$7.32 a kilo, in May 1997. But last Monday, they bottomed out at US$1.02 a kilo, then rose slightly. And the future looks no brighter.
Bountiful rainfall in coffee-growing regions of South America is expected to help produce a record coffee harvest of more than 44 million bags next year in Brazil, the largest coffee-growing country in the world. Each bag weighs 60kg.
The emergence of Vietnam as a major coffee producer contributes to the oversupply. The Vietnamese government has helped farmers in the central highlands plant coffee trees by the thousands. A minor coffee exporter just a decade ago, Vietnam will swamp the market with 12 million bags of generally low-quality coffee this year, which could drive prices to new lows.
"Coffee is dead," said Dov Blumenthal, a trader whose pit name on the trading floor of the coffee exchange is Bear. He said the absence of frost, floods or other natural disasters in South America, good news for the people there, spells disaster for the oversupplied coffee industry. "I've never seen things as bad as this," he said.
The glut could prolong the boom-bust cycle that has haunted coffee for decades. As prices fall, farmers stop fertilizing and pruning trees. Eventually, they may yank out trees, reducing future supply. An unexpected frost or hurricane could wipe out the crop, causing shortages that would push prices sharply higher.
For now though, crumbling prices are causing havoc in the coffee-producing countries, which are on the verge of shutting down the cartel they formed a few years ago to control supplies and support prices. The impact on countries like Nicaragua and Ivory Coast has been devastating, as many farmers sell coffee at less than the cost of production. Some have to choose between starvation and switching to other crops, including illicit harvests like coca.
To the dismay of US consumers, the price collapse has not made its way to supermarket shelves. Prices for the most familiar brands -- including Folgers, Maxwell House, Chock Full O' Nuts and Nescafe -- which account for more than 65 percent of the retail market in the US, have dropped only slightly.
According to Information Resources, a market research company based in Chicago that tracks sales nationwide, the cost of a can of one brand, Yuban, is selling for US$3.77 a pound, only US$0.16, or 4 percent, less than it was in January last year. But the price of green coffee has been slashed by about 50 percent during that time.
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