Currency effects and pricing

Why Currency Matters

• Coffee is traded globally, mostly in U.S. dollars.
• Farmers are paid in local currency, so exchange rates directly affect income.
• Currency swings can make or break profitability for both producers and buyers.

Key Scenarios

1. Producer Side (Origin Currencies):

• Example: Brazil sells coffee in USD but expenses are in Brazilian Real (BRL).
• If BRL weakens vs USD → producers earn more local currency per dollar.
• If BRL strengthens → producers earn less, squeezing margins.

2. Importer/Roaster Side:

• European roasters buy in USD but sell coffee in Euros.
• If USD strengthens vs Euro → green coffee becomes more expensive.
• If USD weakens → imported coffee is cheaper.

3. Hedging Currency Risk:

• Some traders use currency futures or options to stabilize exposure.
• Others build buffer margins into contracts.

Practical Impacts

• Origin Pricing Volatility: Farmers may delay or accelerate sales based on currency trends.
• Contract Negotiations: Buyers sometimes adjust differentials to offset currency shifts.
• Retail Prices: Sudden currency swings can lead to retail price hikes, passed on to consumers.

Example

• NYC ‘C’ price: 180 c/lb.
• Contract in USD.
• BRL weakens 10% against USD → Brazilian producers effectively earn 10% more in BRL.
• European roaster importing the same lot now pays 10% more in Euros.

Summary

Currency effects add another layer of risk and complexity to coffee pricing. While the market is dollar-denominated, both producers and buyers face exchange-rate pressures that impact farm income, import costs, and consumer prices. Managing this requires careful timing, hedging tools, and strategic negotiation.

• Tags:
• Green Coffee
• Matters Coffee
• Requires Careful
• Producers Buyers