WHAT DO WE CALL THIS?
I have been searching for the right vocabulary to use in connection with this current moment in the market, and found a helpful frame of reference in my previous work with an international development organization.
I landed my first job in international development with CRS in the Philippines in 2002. At the time, the southern island of Mindanao where I lived and worked had been the site of a long-running “low-intensity conflict” between the Philippine Army and supporters of an Islamist separatist organization. The term “low-intensity conflict” refers to a sustained and structural tension between armed actors in which violence breaks out only periodically in response to some triggering event or some shift in the local balance of power.
The only problem with the term “low-intensity conflict” was that to the Filipinos caught up in the violence, those episodes never felt especially low-intensity. In fact, the “low-intensity” label was applied from outside. Locals referred to them instead as what they felt like: wars. They added a chronological marker to their references to distinguish between different episodes of violence and displacement. I was there during the “2003 war,” which displaced somewhere on the order of a half-million people.
I landed my first job in coffee less than a year after I left the Philippines, during the late stages of what was then known as the “coffee crisis” — widespread economic, social, and even physical displacement of coffee growers due to a historic run of nearly four-and-a-half years during which coffee futures traded at less than $1 per pound.
The term crisis emerged more recently, when the futures market again fell below the $1/lb. threshold in mid-2018 and stayed there for much of the next two years. The situation was serious enough for coffee producers that the Specialty Coffee Association launched a special initiative in 2019 that it called the Price Crisis Response.
The market is making news again, but news of a different kind. Instead of falling below the $1/lb. level, of course, it has risen above $4/lb. for the first time ever. While producers are not exposed to the same kinds of risks they are in those dangerously low markets, this historically high market is not without its perils, and crises that emerge anywhere in the coffee sector can roil the waters both upstream and downstream. (Last week, I shared some reflections here on some of the implications of high prices for quality and trading relationships.)
These price shocks are structural, built into the architecture of our coffee trading system in a way not dissimilar to the armed violence in the Philippines that was a symptom of its “low-intensity conflict.” So it may make some sense to borrow from the wisdom of the war-weary Filipinos I met during my early days as a development professional in how we talk about moments like these.
If we add the term "price" to distinguish from other kinds of shocks (climate, production, currency, etc.) and a chronological marker to the recurrent market-induced crises that are a structural reality in the coffee market, we might end up with something like this: I started working in coffee during the 1999-2006 price crisis, the SCA mounted its Price Crisis Response during the 2018-2020 price crisis, and we are currently navigating the 2024-2025 price crisis.
Naturally, the current "crisis" is very different than its predecessors in terms of where it allocates pain in the supply stream. While producers may not be feeling the pinch of tight credit markets directly this season or sweating over their margins, they will certainly be affected moving forward if this crisis leads to consolidation downstream.
BEARS 2834, BULLS 68
Yes, the Bears and the Bulls are two professional sports franchises here in Chicago where I live. And although this may look like something out of a recap of yesterday's games, it is not an excerpt from the sports section, but the finance section.
Since New Year's Day in 1980, there have been over 11,000 days of trading on the coffee futures exchange. This is a simple attempt to keep some kind of score of how frequently the market has dipped into extremely bearish territory (under $1/lb.) and risen to bullish heights (over $3/lb.). As you can see, it is a rout.
Before the current rally eclipsed $3/lb. on 22-November, the market hadn't hit the $3 threshold since 2011, and even then it traded above $3 for just two days. The only other time the market bested $3 was in 1997, and that was just for one day. In other words, of the 68 days the market has closed above $3 since 1980, 65 of them have been in the past three months as part of the current market rally. While the red-hot market has cooled and May futures are trading as of this writing in the $3.70s, we are still in the middle of a historic run with no real precedent.
This lopsided scoreboard is why I find it hard to blame producers who may cut corners on the farm, at the mill, or in the marketplace to cash in on today's prices: it's that impulse to root for the underdog that dates back at least as far as the moment David slung his first stone at Goliath. It's not just that producers have never seen prices this good (and probably don't have any living relatives who have either), it's that the ones who have been around coffee for a minute have survived some very, very low markets. Don't get me wrong, I still think producers who cut corners today may have to face the consequences tomorrow. And the former coffee buyer in me finds side-selling and defaults very hard to stomach. But all the years I spent working with growers limping through those brutal bear markets makes me empathize with their situation.
THREE COFFEE PRICE CRISES IN GRAPHICS
The Bears are Chicago's football team and the Bulls are its basketball team, but as I was digging into the data behind the three price crises that have marked my career in coffee, I found myself thinking of a phrase common in baseball broadcasts. Baseball commentators will occasionally call out the official result of a particular play for statistically minded members of the audience who may be "scoring at home." That was me, scoring at home, looking at spreadsheets and wondering what that lopsided Bears-Bulls score would like in graphic form. I found the visuals provide some helpful perspective on today's market and how the current crisis compares to the previous two.
-- Michael Sheridan
