Why the Price of Coffee Beans Soared in the Last Year

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

Tracy, we've talked a lot about various stresses and price increases that we've seen throughout the economy. But one of the themes, I guess, I would say is, and we've joked about is, we talk about a lot of stuff that's very much in the background.

Things that are sort of like disconnected or mediated by several steps from the end consumer.

Tracy Alloway (0:38)

Wait, Joe, can you explain that?

Joe Weisenthal (0:41)

We talk a lot, like we recently talked about the increased price of pallets, right?

And that's gone up a lot. But most people don't experience the increased price of wooden pallets or even the increased price of a shipping container in their day-to-day life.

Tracy Alloway (0:55)

Oh, I see. Well, I don't know.

I guess the cost gets passed on eventually, right? But yes, you're right. We're not purchasing containers once a month in the same way that we are purchasing consumer goods and things like food and stuff like that.

Joe Weisenthal (1:14)

Yeah, exactly right. That's all I mean, which is that a lot of these things are things you wouldn't necessarily see yourself. Even lumber, which we've talked a lot about on the show, you might not necessarily see.

We've talked a lot about grain, which people see, but in many ways that manifests itself in the form of higher meat prices or dairy prices for consumers. So a lot of these things, they seem to be sort of background factors that eventually feed through.

Tracy Alloway (1:40)

Yeah, but on the other hand, since we're basically talking about inflation now, there are some price increases out there that are very much in front of consumers right now.

Primarily food, right? I did a deep dive into mayonnaise and that was something like 8%. And everyone has an opinion on food inflation and what's going on. And it really seems to, I guess, touch a nerve with people.

Joe Weisenthal (2:08)

Yeah, food inflation in particular, gasoline probably the other one is the people that really touches the nerve. But food for sure, and everyone has a theory and everyone's trying to figure out is this a macro thing that is something about the money supply or fiscal that's pushing the price of everything up. But with food, you also have this other dynamic of wet weather and other idiosyncratic factors.

Anyway, I'm very excited because we're going to be talking about another consumable good that is highly emotional for people, that's highly relevant to a lot of people, and that is the price of coffee.

Tracy Alloway (2:43)

Right, so truly something that a lot of people would consume on a daily basis. So the price of coffee has dramatically surged over the past year or so. And I guess the question is how much of that price increase is actually being passed on to consumers?

And here, I have to confess, I really have no familiarity with the coffee market at all. So I'm very, very curious to learn how purchasing actually works, how hedging works, and how the coffee sort of gets from the farmers all the way to Starbucks or a can in the grocery store.

Joe Weisenthal (3:25)

I am very excited about learning all that as well. So we have the perfect guest. We are gonna be speaking with Ryan Delany. He is the founder and chief analyst at Coffee Trading Academy. He has a career of coffee trading, both the spot, physical markets, futures, and so forth. Then he trains companies, he gives them analysis and research on how the coffee market is doing. So we're gonna learn everything about how this commodity market works, hopefully.

Ryan, thank you so much for joining us.

Ryan Delany (3:53)

Yeah, thanks for having me.

Joe Weisenthal (3:55)

Why don't you actually just give us the very brief overview of why are we talking to you? What is your expertise in the coffee market? How do you know it?

Ryan Delany (4:06)

That's a good question. I got no idea why you guys are talking. No.

So I've been in the coffee industry for about a dozen years, but come up with my entire sort of commodity experience is in coffee.

So to give you the 32nd version of my background here, I started out with one of the large multinationals in their rotational program that is one of the top traders of coffee. So I worked and lived in origin in India and in Uganda, sort of buying coffee locally, processing it and then exporting it to consumers. And then I came back to the US and traded coffee, physical coffee there for a little while before I transitioned to our company's hedge fund. And a lot of these large multinational commodity firms have hedge funds to sort of capitalize on their informational edge, you know? So I was the coffee and cocoa analyst and trader for our hedge fund. And one thing you'll hear a lot in the coffee industry, the more you talk to coffee people, is how much, there's coffee guys, there's coffee gals. We refer to ourselves as coffee people. It's very much a tight-knit community.