Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisn'tal And I'm Tracy Alloway. Tracy, We've talked
Speaker 1: a lot about various stresses and price increases that we've
Speaker 1: seen throughout the economy. But one of the themes I
Speaker 1: guess I would say is and we've we've joked about,
Speaker 1: is we talked about a lot of stuff that's very
Speaker 1: much in the background, things that are sort of like
Speaker 1: disconnected or mediated by several steps from the end consumer. Wait, Joe,
Speaker 1: can you explain that we talk we talked a lot,
Speaker 1: you know, like we recently talked about the increased price
Speaker 1: of palettes, right, and then it's gone up a lot.
Speaker 1: But most people don't experience the increased price of wooded
Speaker 1: palettes or even the increased price of a shipping container
Speaker 1: in their day to day life. Oh, I see, Well,
Speaker 1: I don't know. Um, I guess the gets passed on
Speaker 1: like eventually, right. But yes, you're right, we're not like
Speaker 1: purchasing containers once a month, um in the same way
Speaker 1: that we are purchasing consumer goods and things like food
Speaker 1: and stuff like that. Yeah, exactly right, That's all I mean,
Speaker 1: which is that a lot of these things are things
Speaker 1: you wouldn't necessarily see yourself. Even lumber, which we've talked
Speaker 1: a lot about on the show, you might not necessarily see.
Speaker 1: We've talked a lot about grain, which people see, but
Speaker 1: in many ways that manifest itself in the form of
Speaker 1: higher meat prices or dairy prices for consumers. So a
Speaker 1: lot of these things they seem to be like sort
Speaker 1: of like background factors that eventually feed through. Yeah. But
Speaker 1: on the other hand, since we're basically talking about inflation now,
Speaker 1: there are some price increases out there that are very
Speaker 1: much in front of consumers right now. Um, primarily food, right.
Speaker 1: I did a deep dive into mayonnaise and that was
Speaker 1: like something like eight person And everyone has an opinion
Speaker 1: on food inflation and what's going on, and it really
Speaker 1: seems to um, I guess touch and nerve with people. Yeah,
Speaker 1: food inflation in particular, gasoline probably the other one is
Speaker 1: that people that really touches a nerve, but food for sure.
Speaker 1: And everyone has a theory and everyone's trying to figure
Speaker 1: out is this a macro thing that's something about the
Speaker 1: money supply or fiscal that's pushing the price of everything
Speaker 1: up with food. You also have this other dynamic of
Speaker 1: wet weather and other idiosyncratic factors. Anyway, I'm very excited
Speaker 1: because we're going to be talking about another consumable good
Speaker 1: that is highly emotional for people, that's highly relevant to
Speaker 1: a lot of people, and that is the price of coffee, right,
Speaker 1: so truly something that a lot of people would consume
Speaker 1: on a daily basis. So the price of coffee has
Speaker 1: dramatically surged over the past year or so, and uh,
Speaker 1: I guess the question is how much of that pricingcrea
Speaker 1: is actually being passed on to consumers. And here I
Speaker 1: have to confess I really have no familiarity with the
Speaker 1: coffee market at all. So I'm very, very curious to
Speaker 1: learn how purchasing actually works, how hedging works, and how
Speaker 1: the coffee sort of gets from the farmers all the
Speaker 1: way to Starbucks or you know, a can in the
Speaker 1: grocery store. I am very excited about learning all that
Speaker 1: as well. So we have the perfect guest we're going
Speaker 1: to be speaking with, Ryan Delaney. He is the founder
Speaker 1: and chief analyst at Coffee Trading Academy. He has a
Speaker 1: career of coffee trading both the spot physical markets futures
Speaker 1: and so forth. That he trains companies, he gives them
Speaker 1: analysis and research on how the coffee market is doing.
Speaker 1: So we're gonna learn everything about how this commodity market
Speaker 1: works hopefully. Ryan, thank you so much for joining us. Yeah,
Speaker 1: thanks for having me. Why do you actually just give
Speaker 1: us the very brief overview of why are we talking
Speaker 1: to you? What is your expertise in the coffee market?
Speaker 1: How do you know it? That's a good question. I
Speaker 1: got no idea why you guys are talking about. So
Speaker 1: I've been I've been in the coffee industry for about
Speaker 1: a dozen years. Um, but come up, my entire sort
Speaker 1: of commodity experience is in coffee. So I uh to
Speaker 1: give you, you know, the thirty second version of my
Speaker 1: my background here. I started out with one of the
Speaker 1: large multinationals and you know their rotational program um that is,
Speaker 1: one of the top traders of coffee. So I worked
Speaker 1: and lived in origin in India and in Uganda sort
Speaker 1: of buying coffee locally, processing it, uh and then exporting
Speaker 1: it to two consumers. And then I came back to
Speaker 1: the US and traded coffee physical coffee there for a
Speaker 1: little while before I transitioned to our company's hedge fund.
Speaker 1: And you know a lot of these large multinational commodity
Speaker 1: firms have hedge funds to sort of capitalize on their
Speaker 1: their information informational edge, you know. Um, so I was
Speaker 1: the coffee and coco analysts and trader for our hedge fund.
Speaker 1: And uh, you know, one thing you'll hear a lot
Speaker 1: in the coffee industry the more you talk to coffee
Speaker 1: people is how much uh, there's there's coffee guys, there's
Speaker 1: coffee gals. You know, we refer to ourselves as coffee people.
Speaker 1: It's it's very much a tight knit community. So we
Speaker 1: I missed that interaction, you know. So I actually transitioned
Speaker 1: to the cell side from the from the hedge fund
Speaker 1: and and from the prop book I was trading, and
Speaker 1: from there I was that was actually very interesting because
Speaker 1: I was advising clients on managing their price risk, their
Speaker 1: coffee price risk across the supply chain. So that meant
Speaker 1: producers and exporters, trade houses and uh and traders, speculators,
Speaker 1: but also roasters and consumers. So I kind of really
Speaker 1: got a crash course um in in price risk management
Speaker 1: for coffee, and that led me to starting this this
Speaker 1: firm that I work in now where I provide research
Speaker 1: and training to people who have a steak in the
Speaker 1: price and coffee. So, first of all, it's really um
Speaker 1: fascinating to think that a company like Nestley might have
Speaker 1: a a hedge fund nestled inside of it trading coffee futures.
Speaker 1: And I definitely want to ask more about that. But
Speaker 1: before we do, I have a very basic question and
Speaker 1: I was just thinking of it when when I said
Speaker 1: in the intro, you know the price of coffee has surged.
Speaker 1: If we say the price of coffee is at a
Speaker 1: ten year high, what are we actually talking about, Like,
Speaker 1: what is the benchmark of being because I know they're
Speaker 1: there are obviously different types, but like, what's the being
Speaker 1: equivalent of the I guess the ten year US treasury? Okay,
Speaker 1: So I love that being equivalent of the question. Yeah,
Speaker 1: if you could put it in financial terms, Uh. Yeah,
Speaker 1: So the coffee futures market, effectually known as the C market,
Speaker 1: is the primary benchmark for the price of coffee. As
Speaker 1: you kind of alluded to, there are two major types
Speaker 1: of coffee. There's Arabica, which is what we trade on
Speaker 1: the C market. Uh, and then there's Robusta, which is
Speaker 1: what is traded on the London market. Now, the Arabic
Speaker 1: market is traded in cents per pound and the Robusta
Speaker 1: market is traded in dollars per metric ton. But the
Speaker 1: Arabic market is the larger, more volatile and more exciting market,
Speaker 1: so that that also attracts a lot more of this
Speaker 1: speculative interest. But those are the two main markets that
Speaker 1: were trading. And of course there's there's you know, a
Speaker 1: spot market. There's a cash market that's incredibly varied because
Speaker 1: coffee has really exploded in the last twenty years into
Speaker 1: this this idea of specialty coffee and fine coffee. So
Speaker 1: there's a whole you know, secondary market out there, much
Speaker 1: like there is for for wine. Right there's probably a
Speaker 1: benchmark price for wine, but there's also a huge variety
Speaker 1: on the you know, on the low and the high end.
Speaker 1: So quickly, quicklyure are these are the futures that are traded.
Speaker 1: Are they cash settled futures or are they physical delivery future?
Speaker 1: They are physical delivery and that is an essential part
Speaker 1: of the you know, keeping these futures honest. So there
Speaker 1: really is a connection you know, between the futures prices
Speaker 1: and the and the physical and and then you know
Speaker 1: that's done through the certified stocks. It's particularly relevant because
Speaker 1: the exchange has set very steep aging penalties and and
Speaker 1: that exists for a very important reason, and that's to
Speaker 1: to facilitate that cash convergence. Right. We don't want the
Speaker 1: certified stocks to just be a sort of a theoretical
Speaker 1: financial asset. At the end of the day, someone needs
Speaker 1: to take that coffee out of the warehouse and drink it, right,
Speaker 1: So they put heavy aging penalties on that to incentivize
Speaker 1: consumers to d stock certified inventory and consuming. So could
Speaker 1: we um dive into that a little bit more, because
Speaker 1: I was reading that people traders are using more futures
Speaker 1: than normal right now because they're worried they might not
Speaker 1: be able to get enough stock piles on the physical
Speaker 1: the spot market, so they're worried there won't be enough
Speaker 1: to actually take delivery of. Can you just explain how
Speaker 1: that process typically works and how much of trading is
Speaker 1: divided between UM spot and futures and sort of forward
Speaker 1: hedging versus buying right now, because I imagine again a
Speaker 1: company like Starbucks or Nestley, which needs huge amounts of
Speaker 1: coffee every year is probably hedging its exposure very far
Speaker 1: in advance. Yeah, So it really depends because there's a
Speaker 1: there is a variety of size in the consuming side
Speaker 1: and on the export side as well. Right, So there
Speaker 1: is a threshold that you need of of production or
Speaker 1: consumption to to make hedging in the futures market relevant
Speaker 1: and useful. So, for for context, a single futures contract
Speaker 1: of Araplica is thirty seven five pounds. So if you're
Speaker 1: just a small mom and pop roaster, you're probably not
Speaker 1: going to be hedging, you know, on the futures market
Speaker 1: in terms of adding coverage. This is, as you kind
Speaker 1: of mentioned, something for the bigger traders or the bigger
Speaker 1: consumers to deal with. They have a a pretty you know,
Speaker 1: clear system. They have a methodology to how they're they're
Speaker 1: acquiring coffee in general, and that is a combination of
Speaker 1: physical contracts and futures contracts. If you're if you're a
Speaker 1: large company like you know, Nestle or Folgers or whoever,
Speaker 1: you you have a network of suppliers um and you
Speaker 1: will put out you know, sort of bounties. You'll say, hey,
Speaker 1: who wants to sell me coffee, give me your best
Speaker 1: bids or offers rather and and they will send out
Speaker 1: proposals to to those big companies. I don't want to
Speaker 1: get too into at the moment UH the nuance of
Speaker 1: differential contracts and and price to be fixed contracts, but essentially,
Speaker 1: if you're a company like Nestlie, you need to there
Speaker 1: is a spread, right, there is a premium or a
Speaker 1: discount to buying specific physical qualities of coffee to the
Speaker 1: futures contract. So there's there's two different kind of risks
Speaker 1: that they need to manage, but there there is also
Speaker 1: a general larger correlation. So if you're a company that
Speaker 1: does size that needs that physical of coffee, you have
Speaker 1: the option of either buying that physical making a physical
Speaker 1: contract with a producer or an exporter to buy that coffee.
Speaker 1: Or if you don't have a good deal there's not
Speaker 1: a good UH offer to you, or or you're not
Speaker 1: sure exactly which qualities you want to buy, you could
Speaker 1: buy futures right, so you could just buy you know,
Speaker 1: as much of the physical that you need in futures
Speaker 1: contracts and hold that as a hedge until you are
Speaker 1: prepared to sell those out and buy your your physicals.
Speaker 1: Just for the sort of my visual understanding of this,
Speaker 1: can you sort of walk through very quickly every player
Speaker 1: that's involved between the grower and you mentioned you worked
Speaker 1: in India and Uganda. And then I drink some coffee,
Speaker 1: Let's say I buy it at a gas gas station,
Speaker 1: or I drink it at the office like sort of
Speaker 1: like office office quality coffee, which is actually very good.
Speaker 1: At Bloomberg by the way, we have really good coffee.
Speaker 1: But anyway, can you just talk like, okay, someone, there's
Speaker 1: a farmer in Uganda, India. Can you just real quickly
Speaker 1: like the whole supply chain from farmer to mouth. Oh, sure,
Speaker 1: I can. The coffee industry is really divided into or
Speaker 1: let me sit put it this way, that the farmers
Speaker 1: are primarily divided into Brazil and everybody else. Historically coffee
Speaker 1: is produced, it's a it's a small holder production. It's
Speaker 1: done on small farms and small estates um and that's
Speaker 1: has geographical underpinnings because coffee is what we call high grown,
Speaker 1: so it's grown in the mountains and it's tropical. So
Speaker 1: it's really only possible to grow coffee in tropical mountains.
Speaker 1: And that doesn't facilitate itself well to big, mega farms,
Speaker 1: and so that that kind of has this sort of
Speaker 1: small holder farmer implication. The exception to that is Brazil,
Speaker 1: which has these very large plateaus, so they are able
Speaker 1: to grow large amounts of coffee and indeed they're the
Speaker 1: world's largest producer of coffee and mechanize it at the
Speaker 1: same time. So they are the exception where they have these, uh,
Speaker 1: these these large farms and and sort of the mass
Speaker 1: production of the farming of coffee. So you're gonna have
Speaker 1: exporters now who are generally multinationals, but there's also local
Speaker 1: exporters as well, who are positioned in all of these
Speaker 1: key origins, these key producing origins, and they'll have buying
Speaker 1: centers uh, spread out throughout the coffee farming regions, and
Speaker 1: much like you know grain elevators or whatever in the
Speaker 1: US and other countries. UH, the farmers will will have
Speaker 1: relationships with those buyers and they'll know the prices and
Speaker 1: they will deliver They will harvest the coffee themselves and
Speaker 1: then they will deliver it to the exporters. The processing
Speaker 1: of coffee is actually kind of nuanced as well, and
Speaker 1: there's two primary ways of processing coffee. So the coffee
Speaker 1: bean itself, like that brown bean that you see in
Speaker 1: in the bag when you buy that bag, that starts
Speaker 1: out as a green bean inside of a ripe cherry,
Speaker 1: right like a red cherry piece of fruit. So the
Speaker 1: two ways of processing that and getting that bean to
Speaker 1: the roaster is either what we call it the natural process,
Speaker 1: which means that the farmer picks those those cherries, they
Speaker 1: spread them out on a patio to dry, and they
Speaker 1: dry over that bean like a like a kind of
Speaker 1: like a raisin, you know, um, like a hard raisin,
Speaker 1: and you can actually pick those up and shake them
Speaker 1: and hear a little rattle inside when they're when they're ready,
Speaker 1: or they have the washed process. And with the wash process,
Speaker 1: you're picking that ripe cherry and you are putting it
Speaker 1: through a wet mill and and that sort of has
Speaker 1: kind of like uh, remember you know the log shoot
Speaker 1: ride in Disney World where you're you know, you're getting
Speaker 1: the log and it goes down to the thing of water.
Speaker 1: It's what I like that. And so you're being goes
Speaker 1: through this this shoot of water and goes through kind
Speaker 1: of like a cheese graater type of device, which pulps
Speaker 1: that cherry off of it and then brings your washed
Speaker 1: green being at the end out the other side. So
Speaker 1: those are your two primary ways of getting that that
Speaker 1: being to the the exporter UH, and the exporter will
Speaker 1: convert either of those methods into a green processed green
Speaker 1: being that they will sell to the consumer. Now, the
Speaker 1: big issue that you guys have probably been talking about
Speaker 1: with with others and um that everyone is talking about
Speaker 1: in general is supply chain issues. Right so right now
Speaker 1: there is a big issue especially in Brazil, but all
Speaker 1: over the world in Asia, Vietnam with getting containers and
Speaker 1: getting ships there to to actually get that coffee to
Speaker 1: the people who need it UM. And this is this
Speaker 1: has been affecting the price and the supply and demand
Speaker 1: issues because now destination markets have had to draw down
Speaker 1: inventories and consume locally coffee that normally would have been
Speaker 1: been imported in. Now, once that gets into the destination
Speaker 1: marketing and that importer has that coffee, they will sell
Speaker 1: it to the roasters UM. And those can be large
Speaker 1: roasters like the various groups that that roast Dunk and
Speaker 1: Donuts coffee, or or or small roasters or mom and
Speaker 1: pop shops and when that roaster gets that those bags
Speaker 1: of green beans, then they will put it in their
Speaker 1: roasting machines and they will come up with with blends
Speaker 1: of coffee and then it's and then it's delivered to
Speaker 1: the to the coffee shops. So maybe this is a
Speaker 1: good place to explain exactly what is driving the price
Speaker 1: of coffee higher. And I know you mentioned supply chain issues,
Speaker 1: but it seems like, well with most things that seem
Speaker 1: to be experiencing a shortage or some degree of scarcity recently,
Speaker 1: it seems like it's a combination of factors. Absolutely, and
Speaker 1: it's really been you know, what do you call it
Speaker 1: a perfect store? You know, a confluence of events here.
Speaker 1: I am a fundamental um trader at heart. That's kind
Speaker 1: of how I was raised. And what I believe drives
Speaker 1: markets in general is supplying de marin and fundamentals. And
Speaker 1: and this has been a fundamental story. So coffee is
Speaker 1: a biannual crop, so it um meaning that the coffee
Speaker 1: is a is a tree crop, unlike row crops, and
Speaker 1: that you're planting with you know, corn or wheat or
Speaker 1: cotton or whatever. So you have a tree that produces
Speaker 1: fruit and and so what happens is the tree usually
Speaker 1: produces a lot of fruit one year and then the
Speaker 1: next year it sort of has to recover and rest,
Speaker 1: and so it will have less fruit the next year.
Speaker 1: And that's sort of the general biannual cycle of coffee.
Speaker 1: So you tend to have an on near and an
Speaker 1: off here. So we had a very big on year
Speaker 1: in Um where there was a surplus and abundance of coffee,
Speaker 1: and then one we were expecting to have an off year,
Speaker 1: and that was normal, but but it actually was exacerbated
Speaker 1: a bit more than that due to droughts in Brazil
Speaker 1: that that affected the coffee crop on sort of two ends. Now, again,
Speaker 1: coffee is a tree crop, so the way that the
Speaker 1: fruit comes onto the tree is in sort of two phases.
Speaker 1: You will have the branch growth the year prior to
Speaker 1: the coffee crop, and so that you will have what
Speaker 1: we call new growth on the end of the branch
Speaker 1: of the coffee tree, and then the following season you
Speaker 1: will get flowering and fruit on that new growth. So
Speaker 1: what we had was we had a drought that stunted
Speaker 1: that new growth and made less room for coffee cherries,
Speaker 1: and then we had also aged route during that blooming
Speaker 1: season during the flowering season where where those would grow
Speaker 1: into new fruits. So that had kind of a double
Speaker 1: whammy on already a down year for for coffee. Now,
Speaker 1: just to make things even more interesting, um, we also
Speaker 1: had the worst frost that we've seen in Brazil um
Speaker 1: in in in twenty five years. And so even though
Speaker 1: we had this bad crop that we were like, okay,
Speaker 1: this is a bad crop. There's a deficit, but you know,
Speaker 1: we had an on year the year prior. That's normal,
Speaker 1: so you know, the market needed to rally, and all
Speaker 1: that was was well and good, but at the same time,
Speaker 1: we had this frost that essentially killed a lot of
Speaker 1: the new growth now on on the tree that we
Speaker 1: were expecting for our next on crop, our next on cycle.
Speaker 1: So that turned out to be an absolute disaster. And
Speaker 1: that was just back in July, and so we were
Speaker 1: waiting until the flowering which which starts in um sort
Speaker 1: of October November, and to see how how bad things were.
Speaker 1: And we had a decent flowering, so we thought things
Speaker 1: were gonna be okay, but it turned out that what
Speaker 1: we call the setting what was subpar. So what what
Speaker 1: happens is that the branch grows these flowers, um, and
Speaker 1: then those become pollinated and turned into fruits they set
Speaker 1: into a bean. But uh, we much less of those
Speaker 1: flowers turned into you know, juvenile beans than than expected.
Speaker 1: So now we have a massive deficit in the current
Speaker 1: year that we're already in and the bumper crop that
Speaker 1: we were looking to save this deficit to solve the
Speaker 1: deficit has now been severely compromised by frost. So that's
Speaker 1: the supply and demand issue, but it kind of we
Speaker 1: had other factors as well that went into that. You know,
Speaker 1: we had We've been talking a lot about inflation, right, UM,
Speaker 1: that's been uh, certainly a factor, and we saw that
Speaker 1: coffee largely um rallied into uh dollar weakness, uh you know,
Speaker 1: last the earlier part of this year, UM, along with
Speaker 1: many other commodities, and it's really kind of never looked back.
Speaker 1: You know. The people are always it's like people hear
Speaker 1: these supply side explanations and weather in particular, and I
Speaker 1: feel like it's almost unsatisfied to them. And what you
Speaker 1: said is like totally makes sense, but they're like, yeah,
Speaker 1: but sure, certainly there must be like some big macro story.
Speaker 1: And you mentioned the dollar a little bit. I'm curious
Speaker 1: if there's any sort of demand element, and I'm thinking
Speaker 1: specifically in two ways, Like one is a has there
Speaker 1: been a new change in overall volume demand? But be
Speaker 1: did the shift in particularly the developed world and say,
Speaker 1: you're really all over the world from offices where people
Speaker 1: obviously consume a lot of coffee to uh home to
Speaker 1: working from home? Did that change coffee buying behavior at
Speaker 1: all in terms of what kind of coffee people drink
Speaker 1: and did that have any sort of ripple effects on
Speaker 1: the overall market. Yeah? Absolutely. And you know there's a
Speaker 1: reason that we look at the supply side over the
Speaker 1: demand side, I think, UM, at least in coffee, and
Speaker 1: that's because the supply side is volatile and the demand
Speaker 1: side is relatively static. So I always teach them my
Speaker 1: classes that you know, coffee is has inelastic demand and
Speaker 1: it also has inelastic supply generally UM. And that's why
Speaker 1: it's so it's so volatile because because it's a tree crop,
Speaker 1: you can't just plant more if prices are high. You
Speaker 1: have to plant that profits several years earlier, and so
Speaker 1: this exacerbates moves on either side. So you know, prices
Speaker 1: are high, you plant a bunch of new trees, and
Speaker 1: then three years later you start getting the supply from
Speaker 1: that um that point, so then you can get a
Speaker 1: massive oversupply at that point. But to your to your
Speaker 1: point about demand, to the initial reaction back in in
Speaker 1: in in when COVID first became people first realized that
Speaker 1: COVID was going to be here to stay and it
Speaker 1: was gonna be a problem, was a sell off. The
Speaker 1: initial reaction was, this is going to destroy demand. Now
Speaker 1: that that was true, and and I'll tell you why
Speaker 1: in a second, but but before I do, In general,
Speaker 1: coffee has very inelastic demand. And that's because you if
Speaker 1: you're walking down the street and someone is like, hey, coffee,
Speaker 1: free coffee, you might say, oh, great, I'll take a
Speaker 1: cup of coffee, right uh. And then you walk a
Speaker 1: few more feet and someone says, hey, free coffee, you'd say, no, thanks,
Speaker 1: I already have one. Right. You drink one or two coffee,
Speaker 1: so coffee a day or whatever whatever it is that
Speaker 1: you drink, whether the price is ten dollars or one dollar, right,
Speaker 1: that's just it's very there's there's not a lot of
Speaker 1: substitutions for it. You're not like, oh, should I have
Speaker 1: a coke, or should I have a coffee? You have
Speaker 1: your coffees, you know, set amount of them, no matter what.
Speaker 1: Now where the demand does have some wiggle room and
Speaker 1: some play. One of the major ones is in out
Speaker 1: of home consumption. When Starbucks charges you ten dollars for
Speaker 1: a latte or whatever it is, uh, then you might,
Speaker 1: if if times are toffee, might say I can't afford that,
Speaker 1: I'm just gonna buy the cafe bustello, local bodega and
Speaker 1: and that'll and that's how I'm gonna have my coffee.
Speaker 1: So the overall demands tends not to move that much, um,
Speaker 1: but you might shift where you're buying it. And when
Speaker 1: we had COVID and the lockdowns, that created an intense
Speaker 1: shift from out of home consumption where the business of
Speaker 1: coffee shops was all but destroyed, to grocery store where
Speaker 1: that was suddenly where or or Amazon or whatever you know,
Speaker 1: digital subscriptions, and that was really the model now where
Speaker 1: people had to consume their coffee. But more than that,
Speaker 1: the other sort of hidden demand that was destroyed was
Speaker 1: the sort of social demand for coffee. You mentioned office coffee, right,
Speaker 1: so whereas in normally you would have had to go
Speaker 1: to the office and you make a brew of pot
Speaker 1: of coffee, and then you brew a second pot of
Speaker 1: coffee and if no one drinks that, you dump it
Speaker 1: down the drain, right, Or you go to a wedding
Speaker 1: and they might brew a couple of big vats of
Speaker 1: coffee and then they dumped down the drain. What people
Speaker 1: don't consume. So all of these sort of out of
Speaker 1: home events and or or industry events, right, you know,
Speaker 1: people stopped going to industry events for a while, so
Speaker 1: all of that demand from catering and and from coffee
Speaker 1: shops was was pretty much destroyed. M So what happens
Speaker 1: when coffee prices go a lot higher, like A how
Speaker 1: are the costs actually absorbed or passed on? And then
Speaker 1: be do you see a lot of people maybe switching
Speaker 1: from high quality coffee beans like Arabica to something cheaper
Speaker 1: to try to offset that price increase? Oh yeah, absolutely,
Speaker 1: so you see you definitely see switching. Like I mentioned,
Speaker 1: total demand doesn't tend to change that much, but you
Speaker 1: definitely see switching from different varieties. The COVID really hurt
Speaker 1: the specialty coffee business that has been something that have
Speaker 1: been growing tremendously for the last twenty years, as I mentioned,
Speaker 1: you know, there there was a large group of people
Speaker 1: who enjoyed going to the specialty coffee shops and using
Speaker 1: a chemics or um you know, a special pour over
Speaker 1: type of delivery system and and drinking these single origin
Speaker 1: find coffees. That all kind of went away um and
Speaker 1: and a lot of that was lost. But it's more
Speaker 1: generally if you're talking about large prices increases and and
Speaker 1: how are you switching, well, you you have the switch
Speaker 1: in both destination markets and in origin. So in origin,
Speaker 1: the producing countries tend to drink locally and consume the
Speaker 1: cheaper qualities of coffee and export the higher qualities that
Speaker 1: that that are are more valuable. So in Brazil, for example,
Speaker 1: they produced both Arabica and Robusta. So with the high
Speaker 1: prices of Arabica, what you'll see is that the local
Speaker 1: consumption will shift towards Robusta UH and they will export
Speaker 1: less Robusta and more more Arabica. So we'll see that
Speaker 1: shift there. But also on the consumption side, there's plenty
Speaker 1: of companies and and businesses that do Arabica UH and
Speaker 1: so they can't really shift that that split, although they
Speaker 1: will shift too cheaper versions of Arabica if they if
Speaker 1: they need to. But but many companies just put out
Speaker 1: like a breakfast blend or you know, they're you know,
Speaker 1: their French roast or whatever, and they don't specify where
Speaker 1: where that coffee is coming from, and so then they're
Speaker 1: really selling more of a flavor profile. And then it's
Speaker 1: just a matter of optimizing cost versus flavor. When when
Speaker 1: when prices are expensive, is it the Arabica robusta spread? Like,
Speaker 1: isn't that a thing you trade? Yeah? For sure, So
Speaker 1: there is the we call it the ARB, even though
Speaker 1: it's not really an arbitrage. There's sort of two different products,
Speaker 1: um but but that's what we we we call the ARB.
Speaker 1: So the ARB tends to be have a nice little
Speaker 1: range when things are calm, you know, maybe something like
Speaker 1: sixty cents or something like that would be the typical
Speaker 1: Arabica arbitrage. But when Arabica goes nuts, that ORB tends
Speaker 1: to just sort of disappear and just become the price
Speaker 1: of arabica because Arabica tends to um outpace robustas so
Speaker 1: steeply that it's it ceases to have that sort of
Speaker 1: range bound nature and just tends to have I don't
Speaker 1: know how into options you are, but uh, it tends
Speaker 1: to have the same delta as Arabica. So is trading coffee.
Speaker 1: Uh you know, given all that volatility that you just
Speaker 1: laid out, and given these different spreads between different types
Speaker 1: of coffee bean, is trading coffee fun and lucrative? Should
Speaker 1: we all be going into the coffee trading business? All
Speaker 1: become coffee people. You might need to take a couple
Speaker 1: of courses first at the coffee Trade ACAP. But no,
Speaker 1: they they it's not true. It's a myth. But they
Speaker 1: say that coffee is the second most traded commodity in
Speaker 1: the world. Um, for exactly that reason. It's because it
Speaker 1: is fun. I love the coffee business. It's very interesting. Um.
Speaker 1: If you travel to do crop tours, you know you're
Speaker 1: going to sort of interesting and exciting places to to
Speaker 1: learn about it. But from a lucrative speculative point of view,
Speaker 1: there is volatility and coffee and volatilities how you make
Speaker 1: or or in many cases lose money. Right. But but
Speaker 1: you need that volatility to be able to trade. So
Speaker 1: the what we call the tourists interesting coffee is is heavy. Uh,
Speaker 1: there's a lot of uh, there's a lot of people
Speaker 1: who are you know, not necessarily coffee people don't necessarily
Speaker 1: have a coffee background, but like to trade coffee. Uh,
Speaker 1: both you know, sort of technical analysts and sort of
Speaker 1: amateur or armchair fundamental traders. Um. And and there's there's
Speaker 1: plenty of good ones too. You know, there's plenty of
Speaker 1: people who are are just sort of part time specs
Speaker 1: who make money and coffee. Interestingly enough, I I only
Speaker 1: got into Twitter for my business, but in the Twitter sphere,
Speaker 1: the financial twitter sphere, there is a lot of heated
Speaker 1: discussion on the coffee market and what's going on there
Speaker 1: something I'm curious about. It's like, okay, we've talked about
Speaker 1: Arabbic on Robusta, but I think there's other types of
Speaker 1: coffee and I'm sort of curious, like you know, more
Speaker 1: specialized beans or like kna. I was in Hawaii and
Speaker 1: I had ConA coffee there, and then I know also
Speaker 1: like fairly traded coffee, which I imagine has something of
Speaker 1: a different market structure. Let's say, like I want to
Speaker 1: sell in volume ConA coffee in New York, can I
Speaker 1: predictably you use the futures markets for say Arabica as
Speaker 1: a hedge as a hedging instrument, even if my end
Speaker 1: need isn't Arabica, Like, they're enough relationship generally between the
Speaker 1: price where these instruments will be of use to me
Speaker 1: regardless of whether I'm actually selling Arabica. Well, that's a
Speaker 1: great question, and um, you know, the unfortunate answer is
Speaker 1: that it depends right. Uh. So of coffee is either
Speaker 1: Arabica or Robusta. There is a tiny proportion of coffee
Speaker 1: that is um some sort of ancillary uh species like Liberica,
Speaker 1: which is sort of a much larger coffee tree. And
Speaker 1: I've only ever seen that once and that was the
Speaker 1: people used to sort of to border uh their plantations.
Speaker 1: So it was just kind of created a sort of
Speaker 1: a tree border around their plantation that also produced a
Speaker 1: little bit of coffee. But they're not efficient, um and
Speaker 1: they don't produce good tasting coffee. So almost all of
Speaker 1: it is Arabica or Robusta. Now where you see the
Speaker 1: specialization is really an origin. So it's really if you're
Speaker 1: talking about ConA coffee, you're talking about Arabica that's produced
Speaker 1: in Kona. Um. It's that's that's that's produced there and
Speaker 1: other people like you might, I personally always buy a
Speaker 1: hundred percent Colombian. That's my personal coffee that I that
Speaker 1: I really like. It doesn't, then you know the secret
Speaker 1: for you. It doesn't have to be expensive Colombian coffee.
Speaker 1: If you can just you just go by the the
Speaker 1: can of a pent Colombian, it's usually gonna be pretty decent.
Speaker 1: So most Arabica coffees have a good correlation with the
Speaker 1: futures market. Now each will have a differential based on
Speaker 1: how in demand really that origin is versus the the
Speaker 1: overall the overall market. So because the futures market is
Speaker 1: really made up of a basket of what we call
Speaker 1: milds um so that those would be washed coffees. So
Speaker 1: the futures are good that we look at. It's sort
Speaker 1: of like an average of Arabica's right, of a certain
Speaker 1: group of Arabicas. If you look at Colombians, they tend
Speaker 1: to be say, you know, ten or twenty cents more
Speaker 1: than that right now, they're more like fifty five or
Speaker 1: sixty cents more just because of supplying demand issues. If
Speaker 1: you look at something like ConA coffee, you have almost
Speaker 1: zero correlation with UM with the futures market, because that
Speaker 1: is such a tiny area of production and such a
Speaker 1: highly sought after coffee that it's always gonna be like
Speaker 1: four or five dollars per pound. I'm just making that
Speaker 1: number up, But so even if the futures market is
Speaker 1: rallying heavily, that that price tends to be sticky. Same
Speaker 1: with Kenyan coffee. Kenyan coffees are often like a hundred
Speaker 1: cents more than than the futures market. So for those
Speaker 1: sort of very outlier specialty coffees, you're probably not it's
Speaker 1: probably not gonna make a lot of sense to to
Speaker 1: use the futures market to hedge it. But for the
Speaker 1: bulk of coffees first say, the UM, it definitely would
Speaker 1: make sense. Can we go back to something you said
Speaker 1: in the very beginning about large multinationals having hedge funds
Speaker 1: UM that profit off of the information flow, and it
Speaker 1: kind of reminded me of UM. I guess Goldman Sachs
Speaker 1: pre um vocal rule sort of pre financial crisis, where
Speaker 1: it could have a very lucrative internal trading DUSK that
Speaker 1: traded for its own account and it used it's sort
Speaker 1: of position in the market looking at the flow going
Speaker 1: through it to help it make trading decisions. Is that
Speaker 1: sort of what's going on here with coffee? I would
Speaker 1: in differentiate first of all, between say a consuming company
Speaker 1: and a trading company. Okay, this is somewhat of an
Speaker 1: arbitrary distinction, because no matter who's trading coffee, you're and
Speaker 1: this is something I was taught from day one as
Speaker 1: a trader, is you're always speculating. Right. If you don't buy,
Speaker 1: you're speculating that that's you know, a good decision. If
Speaker 1: you if you're buying now, then you're you're essentially bullish.
Speaker 1: If you're if you're selling more than then you're buying,
Speaker 1: then you're barish. Right, So, no matter who you are
Speaker 1: in the supply chain, you're always speculating somehow in your
Speaker 1: interaction with the futures market. So if you are an exporter,
Speaker 1: for example, exporters will trade sort of a prop book.
Speaker 1: Usually they you know, different companies have different rules on
Speaker 1: internal lafer for managing their price risk. But you know,
Speaker 1: let's say you're just a normal local exporter. You buy
Speaker 1: coffee locally and then you sell it for export. So
Speaker 1: what they would normally do if they're a differential trader
Speaker 1: is they would buy coffee locally and local currency from
Speaker 1: the farmers and the producers, and then they would immediately
Speaker 1: sell futures against that in the futures market, and that
Speaker 1: would create a differential position. So they would have, say
Speaker 1: that the current futures prices two dollars and they're buying
Speaker 1: coffee at two thirty UH cents per pound, So they
Speaker 1: buy coffee locally at two per pound, they sell a
Speaker 1: future against it at two dollars per pound, so they
Speaker 1: would have they would be buying coffee for thirty cents
Speaker 1: over and they have locked in that differential right. Then
Speaker 1: when they export that coffee, they sell it to another company,
Speaker 1: and maybe that company buys it for thirty two cents
Speaker 1: over the market, right, and then they would lift their
Speaker 1: heads and sell that coffee to that company. Now, if
Speaker 1: that exporter is smart and they know that prices are
Speaker 1: going to rally, they know that, Let's say you're a
Speaker 1: Brazilian exporter and you know you need to buy coffee
Speaker 1: uh for your you know, for your business, and you
Speaker 1: know that the crop is gonna be small this year
Speaker 1: and the market is gonna go nuts, then maybe you
Speaker 1: would buy futures ahead of time so that when you're
Speaker 1: ready to buy physical, you can sell out those futures
Speaker 1: and and make make some profit. Or maybe you wouldn't
Speaker 1: hedge it right away. Maybe you would buy that physical
Speaker 1: from the farmers, and then rather than just immediately turning
Speaker 1: around and selling futures against it to lock in your hedge,
Speaker 1: you might wait for it to rally another five or
Speaker 1: ten cents and then lock in your hedge. Right. So,
Speaker 1: so that's how they're going to be sort of speculating
Speaker 1: in that in that market, and the consumers are going
Speaker 1: to do the same thing on their side, sort of
Speaker 1: the opposite. They'll be buying or selling futures or options
Speaker 1: to protect their books and protect their hedges in different ways.
Speaker 1: But the trade themselves sometimes have a hedge fund that's
Speaker 1: either or a prop test that's either part of the
Speaker 1: company itself or sort of shares a parent company and
Speaker 1: share information, but have sort of Chinese walls and operations,
Speaker 1: and so they are straight up you know, I don't
Speaker 1: want to say gambling, but you know, speculating without a
Speaker 1: physical position in those um in those markets. That honestly
Speaker 1: makes a lot of sense, and I think is good
Speaker 1: for the market because they have insights into what the
Speaker 1: supply and demand is going to be, and so it
Speaker 1: is better for the market if we know there's going
Speaker 1: to be a shortage for the market to start rallying
Speaker 1: now and repricing to what the proper price of coffee
Speaker 1: should be, to the levels that are going to incentivize production.
Speaker 1: You want that to happen as soon as possible. And
Speaker 1: and the opposite is true on the other side, right
Speaker 1: when when coffee is vastly oversupplied, you need to push
Speaker 1: the prices down to a point that's going to disincentivize production.
Speaker 1: You know, we talked about, okay, the price of these
Speaker 1: commodity coffee futures roughly having doubled in the last year,
Speaker 1: how volatile is the end price of saying, you know,
Speaker 1: like I would say I buy coffee at Starbucks. Actually
Speaker 1: I typically buy a coffee at Dunkin Donuts when I
Speaker 1: buy a couple out there, Like how much is the
Speaker 1: bean in that price versus you know, all the other
Speaker 1: things like the labor of staff at dunkin Donuts and
Speaker 1: so forth. It's a great question, and it's always a
Speaker 1: little bit controversial because coffee is the one of the
Speaker 1: most socially conscious commodities out there. Um, I think just
Speaker 1: by nature of the consumer. I mean, historically they say
Speaker 1: that coffee house has created the enlightenment. Back in the
Speaker 1: seventeenth century, before that, everyone went to the pub. Once
Speaker 1: people started making coffee houses, they were sober enough to
Speaker 1: actually sit up and talk and think with each other.
Speaker 1: So that tradition has carried on to today where if
Speaker 1: you have coffee houses that the consumer of coffee tends
Speaker 1: to be sort of conscientious and they tend to care
Speaker 1: about whether the beans come from. That's not true, you know, entirely,
Speaker 1: it's not true across the boards. Some people, you know,
Speaker 1: just wake up and they want a cup of coffee,
Speaker 1: and that's fine. But that sort of culture has spilled
Speaker 1: over into the demand side. You mentioned fair trade coffee before. That's, um,
Speaker 1: something that basically came out of this coffee culture and
Speaker 1: this desire to ensure that there's sort of equitable treatment
Speaker 1: of farmers and everything. Because of that demand for it,
Speaker 1: that is that is spilled into the trade, and so
Speaker 1: the trade has to facilitate sustainable practices. Something that was
Speaker 1: pioneered in the coffee industry is what we call certified
Speaker 1: coffee um, which is where you have fair trade or
Speaker 1: Rainforest Alliance or boots or whatever, that where they have
Speaker 1: to actually certify that these certain practices are being met,
Speaker 1: you know, in order to to sell your coffee in
Speaker 1: that way. So to answer your question, So that's why
Speaker 1: it's a little bit controversial because when we look at
Speaker 1: the price of coffee versus what you have in a
Speaker 1: coffee shop, and I just saw an infographic about this
Speaker 1: the other day that was put out by the Financial Times,
Speaker 1: then the it's it's pretty depressing because you say, for
Speaker 1: a cup of coffee that costs say, uh, five dollars,
Speaker 1: maybe about twenty cents of that is going to the grower.
Speaker 1: I don't think that that's necessarily inappropriate because a lot
Speaker 1: of the costs are are heavier on the shop side.
Speaker 1: For example, if you offer free milk with your coffee,
Speaker 1: that often has almost the same price as a commodity
Speaker 1: to coffee. So so that's that's gonna be one portion
Speaker 1: of your costs. The rent for your coffee shop is
Speaker 1: going to be something like nine times your cost to
Speaker 1: buy the coffee beans. If you have staff, that's gonna
Speaker 1: be something like six times the cost of your of
Speaker 1: your coffee beans. Right, then you have taxes, right, that's
Speaker 1: that's that's four times the cost of those coffee beans.
Speaker 1: So you have all of these different costs that that
Speaker 1: really are built into the price of that cup of coffee,
Speaker 1: which feels unfair, you know in a lot of ways
Speaker 1: to that to that grower. And you know, there's a
Speaker 1: lot of people who have dedicated their lives to ensuring
Speaker 1: that the the grower gets more of that. And uh,
Speaker 1: you know, I think that's a very that's a very
Speaker 1: popular industry in the coffee world is facilitating that. But
Speaker 1: I think what really sort of irks people about it
Speaker 1: is that it feels like a cup of coffee is
Speaker 1: almost like a direct commodity. Right. It feels like, oh,
Speaker 1: you know, if you buy uh an orange in the store,
Speaker 1: like most of the price for that orange should go
Speaker 1: to the grower of the orange. Right, the same thing
Speaker 1: if you buy a cup of coffee, you feel like
Speaker 1: it's it's coffee. Shouldn't you know, require anything but money
Speaker 1: to the grower, But it really requires a whole lot
Speaker 1: of capital aside from that that initial being that a
Speaker 1: being is part of it, but you have to on
Speaker 1: top of you know, once that being just gets sent
Speaker 1: to the exporter. Then you have a huge capital equipment
Speaker 1: costs to process it. Right, all of that those wet
Speaker 1: mills and dry mills we mentioned those are those are
Speaker 1: big intensive machinery. Then you have to process and transport it. Right.
Speaker 1: The we've all seen the prices if you look at
Speaker 1: the Baltic Dry Index or something, you've seen the prices
Speaker 1: of shipping. How much of that goes into it Once
Speaker 1: it comes to the destination market. The roaster has a
Speaker 1: huge amounts of costs, energy costs and UH and capital
Speaker 1: equipment costs to turn that green bean into a brown bean.
Speaker 1: And then once it gets to the shop, right, that
Speaker 1: shop owner has to pay their staff, they have to
Speaker 1: pay health insurance, UH, they have to pay taxes. So
Speaker 1: there is really a whole unseen sort of supply chain
Speaker 1: of costs that go into that. Yeah, it sounds a
Speaker 1: bit like oil, right where there's a huge outlay for
Speaker 1: capital and exploration UM. And then of course you have
Speaker 1: the refining process and all of that actually goes into
Speaker 1: the cost of the end product. Ryan, I want to
Speaker 1: ask you the obvious question here, which is how long
Speaker 1: would we expect these high price is to persist, and
Speaker 1: I asked, because lots of people seem to be suggesting
Speaker 1: that this is going to be a longer term issue.
Speaker 1: But we're actually recording this episode on the day that
Speaker 1: the US Department of Agriculture just released its latest coffee report,
Speaker 1: which is a thing that I didn't know existed. And um,
Speaker 1: the Department just increased its estimate for world coffee output.
Speaker 1: So coffee prices are falling, at least for today. So
Speaker 1: I guess the question is is this a turning point
Speaker 1: or would you expect price pressures to be with us
Speaker 1: for some time? So I would I'm a fundamentalist, And
Speaker 1: the reason that coffee prices are high, I believe or
Speaker 1: because of supply and demand issues, and we are in
Speaker 1: the midst of those supply and demand issues now. Historically,
Speaker 1: if you look at the price of coffee on a
Speaker 1: fifty year charge or hunter deer charge or something, you'll
Speaker 1: see that it looks almost like an e k G. Right,
Speaker 1: you know, like that machine that goes deep in the hospital.
Speaker 1: You have these spikes, then it comes down and rest
Speaker 1: for a minute. And then they had a spike and
Speaker 1: it comes down and rest for a minute, and it
Speaker 1: tends to do that between one dollar and three dollars,
Speaker 1: so to fifty is as my boss or twenty five
Speaker 1: as my my old boss used to say, the hedge fund,
Speaker 1: it's kind of half pregnant. Um, it's not really. It
Speaker 1: hasn't really hit that full three dollar. This is a
Speaker 1: major problem mark that we typically expect from coffee. Now.
Speaker 1: I don't know if it's going to actually go there
Speaker 1: or not. Maybe we've maybe we've solved the supply issues already,
Speaker 1: but it doesn't seem like that. It seems more like
Speaker 1: and in the U. S d. A UH is great
Speaker 1: for things like corn and wheat and especially those US
Speaker 1: centric markets. It's not the people in the coffee world
Speaker 1: don't pay a ton of attention to it. Um, it's not.
Speaker 1: It's not necessarily market moving. But if you look to
Speaker 1: the people in the know right now, it's all about
Speaker 1: revising down Brazil estimates um for this coming crop. And
Speaker 1: that's really what it's all about. We're in the deficit
Speaker 1: market right now, that's for sure. Now the question is
Speaker 1: will twenty two be balanced a little bit of a
Speaker 1: surplus or a deficit, And there are some people saying
Speaker 1: that it's going to be a massive deficit. They're kind
Speaker 1: of outliers. I think the consensus is more for a
Speaker 1: modest deficit and moderate deficit, which is no small thing
Speaker 1: on the back of a big deficit, right, especially when
Speaker 1: you were expecting a surplus after that, So that tightness
Speaker 1: should in theory continue uh into the next deficit year.
Speaker 1: But the real estimates so we're right now, we're in
Speaker 1: the cycle of Brazil where the flowering has happened, the
Speaker 1: setting has happened, but the beans are really too small
Speaker 1: to really be able to get an accurate account engage
Speaker 1: yet of what that crop is going to be. But
Speaker 1: in January we should be able to get a more
Speaker 1: accurate count, will start to see the real estimates coming
Speaker 1: out as to what that crop will be, and that's
Speaker 1: largely going to determine the direction the price of coffee. Ryan,
Speaker 1: thank you so much for coming on odd Lots. I
Speaker 1: just learned a ton about coffee and really appreciate you
Speaker 1: joining my pleasure. Yeah, thanks for having me, Thanks so much.
Speaker 1: Frying that was great, Thank you so much. Frying crazy.
Speaker 1: You know, I know people get frustrated a little bit
Speaker 1: about all these sort of like weather and idio sittingcratic
Speaker 1: explanations because they think like, oh, surely must be all
Speaker 1: about the FED or inflation or something like that. But
Speaker 1: it really does feel like coffee, especially as he described
Speaker 1: at the beginning, like, yeah, it's really about like a
Speaker 1: bunch of weird weather stuff and a lot of it,
Speaker 1: particularly in Brazil. Yeah, I mean, it does seem like
Speaker 1: we've had these events where a confluence of different factors
Speaker 1: come together to create this, Ryan said, the perfect storm
Speaker 1: for a lot of commodity prices recently. But I guess,
Speaker 1: on the other hand, you might expect that to happen
Speaker 1: given that we've just had a global pandemic which has
Speaker 1: really up ended the way we do things normally. Right,
Speaker 1: a pandemic isn't technically a storm. But if you you know,
Speaker 1: if you don't have to um, you don't have to
Speaker 1: extend that metaphor or that analogy like too widely to say,
Speaker 1: like how we could use the term perfect storm and
Speaker 1: have it encompashed that and of course is Ryan pointed out,
Speaker 1: you know, there's energy prices go into coffee. He mentioned
Speaker 1: the Baltic Dry Index and shipping, so all of these
Speaker 1: things getting jostled or whacked at once. Uh yeah, Like
Speaker 1: of course, like it's going to happen even in coffee
Speaker 1: at the you know, in the middle or you know,
Speaker 1: the later stages hopefully of a pandemic whack inflation strikes again. Actually,
Speaker 1: there's one thing I'm bummed I didn't ask Ryan this,
Speaker 1: but I wanted to ask how much of the buying
Speaker 1: that we've seen over the past year that's helping to
Speaker 1: push up prices, how much of that is people buying
Speaker 1: in order to pad their inventories, um, just in case
Speaker 1: they can't get they can't get coffee beans in the future.
Speaker 1: Because again, this is an issue that we see in
Speaker 1: lots of different commodities, this bullwhip effect where businesses people
Speaker 1: find it difficult to balance their ordering with actual demand,
Speaker 1: and so you get these big swings in inventory and
Speaker 1: then a big swing in the price as well. So
Speaker 1: I'm curious whether or not that's coming into play, But
Speaker 1: I guess I'll have two d m Ryan on on
Speaker 1: coffee Twitter. Yeah we can, uh, we can write a
Speaker 1: follow up a blog post on that for the blog.
Speaker 1: But yeah, I mean, you know, as you pointed out,
Speaker 1: like everyone in the industry more or less, is some
Speaker 1: reason to have a prop book on the side, or
Speaker 1: as you put it like everyone is also kind of
Speaker 1: speculating as well, and so if there are these concerns.
Speaker 1: I thought that was really interesting about actually the lack
Speaker 1: of sensitivity on the supply side for tree grown crops
Speaker 1: versus other kinds of crops. So obviously, you know, we
Speaker 1: talked about you know, you can talk about like corn
Speaker 1: and rice and soy, and if it looks like the
Speaker 1: price is surging, then a farmer could say, Oh, I'm
Speaker 1: just gonna like reallocate more of my uh my acreage
Speaker 1: next year to soy or corn or whatever it is.
Speaker 1: That's a really interesting distinction that I had never thought
Speaker 1: about that that's inherently impossible with a tree grown crop
Speaker 1: that's going to have a minimum like say like two
Speaker 1: or three year cycle before that tree bears fruit. And
Speaker 1: we kind of interesting, like I hadn't thought about that
Speaker 1: at all, But you know, like watching the next two years,
Speaker 1: and now I'm gonna like, oh, do about the sort
Speaker 1: of like the supply sensitivity two crops or to any
Speaker 1: commodity in which there is that longer, longer lead time
Speaker 1: on the supplies. Definitely, Joe, what's the what's the best
Speaker 1: coffee that you've ever had? Oh? Good, question. I just
Speaker 1: probably just like at a seven eleven or a dunkin
Speaker 1: Donut somewhere and a styrofoam cup like to me, you know,
Speaker 1: like on the on a road trip, big a big cup,
Speaker 1: like a really big cup of coffee, sort of just
Speaker 1: like hitch the spot. What about you? What you probably have?
Speaker 1: Knowing you, you you probably have like some very specific being.
Speaker 1: I'm not seek out when you're in some soon. No,
Speaker 1: I'm not like I'm not a coffee snob. I like
Speaker 1: plain black coffee as well, but I would say probably
Speaker 1: the best coffee I've ever had was um in Vietnam.
Speaker 1: I had one of those egg cream coffees that has
Speaker 1: like egg mixed into it. That was so good. You
Speaker 1: are a chocolate snob though, right, No, not really. I
Speaker 1: am equal opportunity chocolate consumer. I like all the chocolate,
Speaker 1: like from from her, She's all the way up to
Speaker 1: the very fancy stuff. All right. Well, anyway, plenty more
Speaker 1: to talk about. We'll have Ryan back on next year,
Speaker 1: or to talk about what happens if the if supply
Speaker 1: and demand normalized, and we'll be watching those January January
Speaker 1: being reports from Brazil. Yeah, alright, shall we leave it
Speaker 1: there let's leave it there, all right. This has been
Speaker 1: another episode of the Ad Thoughts Podcast. I'm Tracy Alloway.
Speaker 1: You can follow me on Twitter at Tracy Alloway and
Speaker 1: I'm Joe Why Isn't All. You can follow me on
Speaker 1: Twitter at the Stalwart. Follow our guests on Twitter Ryan Delaney,
Speaker 1: He's at Coffee Ninja Ryan. Follow our producer Laura Carlson,
Speaker 1: She's at Laura M. Carlson. Followed the Bloomberg head of podcast,
Speaker 1: Francisca Levi at Francisca Today. And check out all of
Speaker 1: our podcasts at Bloomberg under the handle at podcasts. Thanks
Speaker 1: for listening to