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Issue Date: Vol. 56, No. 12, December 2016, Posted On: 1/2/2017


Coffee Prices Stabilize And Political Outlook Improves (Or Not)


by Kevin Daw
TAGS: Vending Times columnist, vending, office coffee service, OCS editorial, coffee industry, coffee market, coffee roasting, Heritage Coffee, Kevin Daw, 2017 coffee market, coffee futures, NAMA Coffee Hall of Fame, Trump and small business, EPA and coffee roasting, bearish coffee market

Before I dive into this month's topics, I want to extend great thanks to NAMA for recognizing all past coffee service Hall of Fame recipients (including yours truly) at November's Coffee, Tea and Water show in Nashville. It was a herculean effort to track down so many old-timers, and it was a veritable Who's Who of coffee service industry pioneers, innovators and champions. Kudos to all involved.

I've discussed the market twice in 2016 year, in the March and August issues. In both articles, I questioned why the market was propelling itself even higher than could be accounted for by rumor and technical-analysis trades. And I warned that it could keep going higher yet with more "bearish" news. I set the word "bearish" in quotes because traders would call bad news that moves the market higher "bullish," whereas for us in the business, it is anything but, since what moves higher is the price of the coffee buy.

There hasn't been much in the way of "bearish" news, outside of robusta issues in Vietnam and vague speculation on Brazilian rainfall shortcomings. The technical folks, as I reported in August, were likely to send the market higher regardless, in their self-fulfilling prophetic way, until such time as they could no longer justify buying more. Once their fiscal energies were spent, there was nothing left to keep the market at a high close to $1.80, and we have seen a precipitous fall since, to a level (at this writing) of $1.45 for the March "C" contract. Can we consider this a bullet dodged?

I believe we can, at least in the short term. Technical folks will now have to see this as a "reversal" and unless they go against their lemming-like habits, they should continue to let the air out of the balloon until only the hardiest are left mucking around in our coffee waters.

Change For The Better?

And an event has happened since the last issue of VT, namely the election of our next POTUS. I won't go into any cheering or jeering here, but certainly the upset-like victory of Donald Trump has changed the thinking on public market positions: big money has looked to get back into biotech, oil and banking, for example. The money needed to make these moves had to come from somewhere, and it is very likely that a lot of capital has been pulled out of our commodity for this purpose, thus helping to fuel the recent slide. It's an interesting side effect of the election that I, for one, did not expect but am glad to see.

Speaking of our president-elect, a couple of Mr. Trump's campaign promises that should help all of us are cuts in corporate taxes and regulations. If the corporate rate is lowered commensurately with fewer write-offs, that may well be a net negative in our capital-intensive industry, and we can hope this will not be the case. Regulations, on the other hand, is an area I have been driven crazy by of late, and I don't believe I stand alone. Mr. Trump may have meant banking, healthcare and mortgage regulations when he promised to unscramble our red tape, but I hope keen eyes are looking over many more.

There are some regulations out there that, given their black-and-white nature, can in some cases be downright foolhardy and contrary to their very reasons for existing in the first place. I will give you one example. In our roasting business, we used to be required by law to burn off the smoke created in the roasting process. This required an "afterburner," fueled by natural gas to bring the burner up to a high enough temperature to incinerate the visible smoke at the end of our smokestack.

Many years ago, a local EPA-type agent was in the area and smelt coffee. Not liking the smell of coffee -- I know, right? -- the authorities proceeded to hunt us down and inform us that we needed to increase the heat generated by the afterburner to remove not only the smoke, but also the aroma, from the air. In order to do this, we had to up our usage of natural gas substantially. So by regulation, we are burning fossil fuels and emitting greater quantities of CO2 into the atmosphere in order to prevent our plant from discharging what amounts to pleasant campfire smoke. That may sound a bit tongue-in-cheek, but I have to wonder if this has ever been considered -- and I strongly doubt that it has.

And now there is talk of upping the carbon tax in our area. So we will be paying for the privilege of doing something I don't believe anyone has even bothered to analyze for efficacy or potential value to the planet. I'm running out of space for this issue but will take up the vexed question of regulations and how they affect other aspects of our businesses next time.

If you have regulation issues or stories, I'd love to hear them. Please email me at nivekrst@gmail.com . As always, may your cup run full and the brew, exquisite.

KEVIN DAW is president of Heritage Coffee Co. (London, ON, Canada), a private-label roaster serving the breaktime management industries. A 30-year veteran of OCS, water delivery and vending operations, he has concentrated on coffee roasting for the past two decades.


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