So you want to make sure that there's speculators in the market so that there's, let's say you've got options. You've got somebody on the other side of that trade that very quickly taking it up. Is that correct? Yes, so thank you for saying that because most people assume if they look at a quote board or pull up a website and they see coffee's trading at 360, they assume they can just buy it at that price and that's it.
It's that easy. But for you to buy coffee at 360 or sell it, somebody else has to be willing to take the other side of it. So if you want to buy it, someone has to be willing to sell it at that price. If it's a liquid market with speculators and people buying and selling constantly, you're not going to have any problem doing that if that's what you want to do.
Right. But for you to buy coffee at 360 or sell it, somebody else has to be willing to take the other side of it. So if you want to buy it, someone has to be willing to sell it at that price. If it's a liquid market with speculators and people buying and selling constantly, you're not going to have any problem doing that if that's what you want to do.
Right. If there are, you take the speculators out, suddenly instead of paying 360, you might be paying 365. Maybe you're paying 364. So suddenly your cost of participating in the market just exploded.
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So check the show notes for details and advertise with us today. Welcome to the Daily Coffee Pro by Mapa Forward, friends. I'm your host, Lee Safar, and this is episode four of a wonderful five-part series with Carly Garna from Decali Trading. We're talking about the coffee market in 2025 and 2026.
And by coffee market, we don't mean the cash market or, you know, coffee on coffee farms or for roasters or anything like that. We're talking about the futures market. And something that is a really contentious thing in the industry whenever we're talking about the futures market, Carly, is speculators. People are really, really angry that speculators are allowed to have such an impact, mostly because farmers can't afford to participate in the futures markets.
And it's typically the big trading houses that are really buying and selling contracts. But I had a conversation with ChatGPT the other day. We're very good friends. And I said, you know, what's the breakup of speculators to traders in the market?
And I wanted to ask you if this was correct. What it said to me was that actual traders made up about 36% of the market. Speculators made up 37% of the market. And the rest, about 15%, was made up of, like, other people doing other things.
And it said, look, they're typically sort of speculators or traders doing speculative things. So that's why they're in the other category. Is that a sort of correct breakup? I guess it depends on what the definition of traders are.
Like, when I think of traders, I think of speculators. So I kind of mesh those together. But are we talking about, like, hedgers or... Yeah, so traders are people actually trading contracts that are actually in the coffee industry, let's just say, versus speculators who are purely, like, trading the market for what you're saying.
Okay. I would say that's probably relatively accurate. I'm not sure there's any way to know 100%. The government does put out a commitment of traders report.
The U.S. government does. And so we can kind of see some of the breakdowns. But there's some fuzzy lines in there.
I would say that's probably accurate. Even, quote-unquote, traders, like hedgers or producers and end users, even they are very hesitant to actually take it all the way to the end and either make or take delivery on the exchange. So I'd say that's probably about right, yeah. So can you tell people what speculators are?
Right. So speculators are... First of all, when we lump speculators into one category, I kind of cringe a little bit because there's different types of speculators. There are speculators that are using markets as a casino.
And I hate to say that because I was in the business of futures brokers. But that is legitimately what some people are doing. Not unlike sports betting or some... You know, this is their entertainment and they're placing big wagers and most of them lose money.
I'll put that out there. I mean, I'll also say, everybody, people want to complain about speculators. But the reality is most speculators lose money. Everybody assumes they're making money, but they're not.
Yeah, I was shocked when I heard that from you, that most people lose money when they bet. It's essentially betting, right? They're betting that the price is going to go up or the price is going to go down. And most of them don't really understand what's happening.
So they're like going off vibes and their vibe is telling them... Bro, I heard Bloomberg say that the price of coffee is going to go up, so let's just throw a few grand in there. Most of those folks are losing money. They do.
And there's speculators that open with $2,000 or $3,000 and then there's people obviously trading multi-millions. But the vast majority of them, even when they... And I'm talking about aggressive speculators. So in futures, everything is leveraged.
So you can buy or sell a coffee contract for... Shoot, I should have looked at the margin, but I think it's like seven or eight grand right now for a futures contract. And you're controlling a very large amount of coffee. So the reality is there's very little room for error and most people eventually, even if they have a really good run, they eventually get caught in the wrong place at the wrong time.
Maybe Trump tweets something, a tariff changes, and boom, it just blew out their account. That's been happening. So it's a bit of a casino-ish type of vibe in some instances. But then there's also speculators that are actually methodically attempting to diversify their portfolio.
You know, they own stocks, they own bonds. Commodities are generally kind of doing their own thing, not always, but a lot of times. And so they're just trying to diversify and trade responsibly and they're not trying to get rich quick. They're trying to slowly, hopefully come out ahead at the end.
So you can't just say a speculator is all one type of person, but they do bring liquidity to the market. So there are some advantages to having speculators. I know it's not obvious, especially when we see volatility like this, but I can promise you if you took speculators out of the equation, you'd have a very, very hard time not only managing your risk, but selling your product at a fair price because what happens is liquidity dries up and the bid-ask spread becomes very, very wide. The price you can buy something at and the price you can sell something at gets wider and wider because there's just not enough risk management tools built into the system to accommodate all the transactions.
So help me understand that more. I should have asked ChatGPT before this so I could be prepared. I'm sorry. So when we say they're bringing liquidity to the market, if I understand it correctly, because they're bringing money to the market, it keeps things moving.
Is that correct? It keeps things liquid. So at any time of the day, if you look at coffee, there's two prices, right? There's a bid and an ask.
You can buy it at this price, you can sell it at this price. There's a tiny spread in between. A spread is usually a tick or two, no big deal. If liquidity dries up, I'm going to give an example in March, I think it was March 2022 when Russia invaded Ukraine, a lot of speculators just kind of said, you know what?
I'm not touching this for a while. So we saw in markets like wheat, crude oil, natural gas, where the bid-ask spread, the price between what you can buy and sell, instead of being a couple of cents, it was a couple of dollars. Like in crude oil. So if you wanted to buy a crude oil contract, this is just hypothetical, like I recall these, but I do recall these quotes.
You could buy it at $112 a barrel. Or if you wanted to sell it, you could sell it at like $109 a barrel. So there's a $3,000 spread or roughly 2% on a contract value. So suddenly the cost of doing business just explodes dramatically.
And that's because there's no speculators there. Once you take speculators out, there's not that many people trying to buy or sell, so it becomes very expensive. Okay, that's the first time I've understood it. Thank you for that.
So you want to make sure that there's speculators in the market so that there's, let's say you've got options. You've got somebody on the other side of that trade that very quickly taking it up As ranchers and farmers actually do their own hedging, and so it's the opposite because they take it a little further. So they open an account, they're hedging, and then they start thinking, well, I'm hedging, but maybe I can speculate over here a little bit. And it ends up kind of going in the opposite direction.
So it's really interesting how the two dynamics are definitely opposite ends of the spectrum. And it's 2025, so we can, or we might avoid getting conspiratorial, but this, what I think has happened historically is that there has been a benefit to not educating farmers on this tool that's available to them. Because if that middleman controls all of it, then we don't empower the farmer to be able to balance their own risk out right now. What you've got is farmers are borrowing a lot of money at like interest rates somewhere between 25 to 50%.
It's ag loans are disgusting. They borrow that money, they get into debt, they can't afford to hedge. And so this is where they're in this constant cycle of poverty. And on top of that, the children are saying, why on earth would I want to be a coffee farmer?
And so now what we've got is, you know, we recently had Mariana Bay's Jost from Costa Rica, our coffee farmer in Costa Rica come on the podcast and she said, just in Costa Rica, there has been a 46% reduction in coffee farmers that have just completely gotten rid of their farms over the last decade, less than a decade. Because their kids don't want to do it and they're getting too old to do it. In Kenya, the average age of a farmer is in their 60s. In most places, it's somewhere around their 50s.
And these tools are available to farmers to be able to perhaps give them a little bit more relief, but they haven't been taught that they exist or that they can use them and they have access to them. And what I'm thinking is that if farmers and roasters can build these relationships more closely and perhaps share the risk by deciding on a price and perhaps using these tools to balance that out, perhaps there's a way that both farmers and roasters can work together using these tools to bring more stability to the market. Does that sound crazy? No, it doesn't sound crazy at all.
It sounds like common sense. The problem is, as humans, we've always done something a certain way and so we're not very good at change, right? Right. But change is very, change is necessary to grow and I think you're on the right path.
And I learned something from you. I honestly had no idea that farmers in other countries were facing those kinds of interest rates for ag loans. That's, that's really wild and very unfortunate. You know, these, these prices this year, I have heard many, many, many farmers say to me that these prices were a blessing because the reason their ancestors got into, let's say their 5th, 6th generation farmers, when the first generation passed it on to the second and the second onto the third, they were passing on wealth.
From the third to the fourth, the fourth to the fifth and the fifth to the sixth, those three generations were passing on debt. This is the first year that they were actually able to wipe out all of those debts and they're at least able to start from zero again. But the next generation doesn't want the farm. So this is why when I say, you and I have these conversations about fundamentals, I'm thinking about these things where like we have a serious supply problem for many, many reasons over the next at least decade.
For it's climate is a problem, but also succession is a really big issue. And if we don't have coffee, we don't have coffee. And then you get these massive, like we were talking about the floods in Vietnam. Coffee just keeps seeming to be hammered again and again and again.
And there's only a very specific part of the world that can grow coffee. And if it is going through constant issues with regards to weather and let's say the weather changes and like now in Uganda, they're starting to grow coffee again. We will see an increase in coffee production in Uganda, but enough to cover what Brazil is doing. I think not.
And Brazil is getting hammered with an increased regularity of, you know, once in a generation weather incident. The frost is getting worse, but erratic and it's not something that they can predict. Dry weather, all of this kind of stuff. And so it's the uncertainty in the fundamentals that leaves people wondering, how is that correlating to what's happening in the futures market?
And then they're saying, but the speculators are the only ones that seem to be benefiting from what's happening in the fundamentals because then they take that and they say, we're betting that because Brazil had frost, there's not going to be enough coffee. And now we're waiting to see what happens with the markets because of what happened in Vietnam. And the farmers are saying, how come we're not benefiting? How come we're not making any money out of that?
So you can see why people are pissed. Oh, for sure. Listen, there's the commodity business is misery after misery. Like it, there's, it's just a it's a cycle of misery.
It really is. Um, you have to question my life decisions, so. But that's why we have friends so that we, so that we know that we, the only, like that we made some good decisions, right? Our friends can be our good decisions.
So we have one episode to go, folks. So join us for that. We're going to talk about 2026. So, uh, this should, strap in.
This is going to be fun. Peace, love and peanut butter. Have an amazing rest of your day. This episode is part of a five-part series produced by Mapper Forward.
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