You can trade a drought three or four times. You can have the drought matter at the beginning of the cycle, the drought can matter as the harvest is coming in, the drought can matter as you start the next crop and you're waiting for the rainy seasons. Like that, that you can trade that three times. But in between, you can get any number of different reasons for people to buy and sell off of the observed weather, just off of fear.
A lot of it is fear. A lot of it is fear and greed. And I think that, you know, if you think about a market that is driven by the fear of something going horribly wrong off the fact that there's like trauma of the past three years of what's gone wrong, you can see why people trade this stuff. You know, you can see why people take an interest in it because look, ultimately, everyone's trying to get ahead.
Everyone's trying to make a buck. You know, this is a capitalistic industry on all sides. And I think that at the end of the day, the job of the market is to figure out and price what everyone thinks is going to happen. Ultimately, we'll decide.
You know, people will decide if it rains enough. People will decide if things are good, if the story is over. And they might decide it really quickly, but the weather is definitely one of the three or four catalysts that can make things move really quickly in a big way. In a big way.
And that's a large part of what we've seen, I think, over the last kind of three years. Yeah. It's, you know, we've been talking a lot about price and this year about the volatility around that. And what was interesting that we kept tracking was every time somebody would release a prediction about what's going to happen with the weather, you could track it almost immediately, like within the space of minutes of that starting to get shared all over LinkedIn, you could start to see movement on the C market.
And surely enough, you would hear producers turn around and say, it's great while it's on the way up, but this volatility, if somebody comes out and says something and causes the price to drop, that has real life effects for the coffee farmer in the real world. And this is where the disconnect is really creating a lot of problems in the industry because there's this speculative market that's happening that has real life consequences for people who are actually in the supply chain, but has nothing to do with those people. You've got finance bros that are jumping in and a lot of people in our industry, whether it's small to medium coffee farmers or it's small to medium roasters, they're completely priced out of hedging or buying options on the C market. It's just not viable for them to do that.
Yeah. I mean, there are, I'll be the first to tell you right now that that situation you're describing about, you know, the volatility impacting the producer also impacts the roaster and anybody else. I know several people who have lost jobs this year because of issues related to volatility, related to price shocks. But I'll also say that coffee has done this before.
It did it in the 90s. Coffee has had these periods where there's an old saying from a trader that I used to work with. If you're not in the fetal position at some point, you're not a coffee trader. Coffee just makes people feel pain on every side of the supply chain.
It is a very volatile commodity unless you have a lot of supply for a long period of time. I worry that the volatility is causing irrationality in behaviors from people, that they are making decisions based on what is happening in a very small window rather than looking at a larger picture. It's the noise in front of you is making people miss the broader kind of seeing you're missing the forest from the trees. What do you think people are missing?
Yeah, I think people are, there's a few things I think people are missing. Number one, we as an industry are going to be dealing with volatility in the near term. That's fine. But in the long term, Brazil has a big crop right now.
Brazil has a big crop sitting on its streets. In time, that crop is going to get to you in the marketplace. You just need to be smart and keep cool. Like, like don't overtrade.
Don't overreact. Don't try to speculate with everyone if you're a roaster. If you're a producer, like, follow your schedule and continue to sell at your pace so that you're making sure you're paying your bills and that you're not left holding this big bag of coffee if the price drops a buck and a half. Right?
Speculation has reached the roaster and the producer. Everybody's speculating in this thing. It's not just the finance person sitting behind his tree. Right, right.
Everybody. Everybody. When you sell is a speculate, right? So how confident are you that Brazil is a sure thing, though?
Let's put it this way. We are not nearly as, I am not nearly as concerned about the weather that I observed this year at any point over the past three years versus what I'm seeing right now. I have not been shy when I thought that there were problems in Brazil. I have not been shy at all.
I've not been shy when I thought that the cold was significant. I have not been shy when I thought the dryness and the heat was significant. At $1.50, $1.75, I was screaming from the rooftops two years ago, this ain't good. Nobody wanted to listen to me.
And then here we are, you know, a year and a half, two years later, and all of a sudden everything looks crazy. Right now, I don't believe that we're there. I actually think that we have avoided catastrophe. We avoided really anything terrible in September and October.
We've got to get through the season, but I think the idea that you're going to, for this cycle, you know, lose five, eight, 10 million bags worth of production, I don't, I don't see it. I think the rains have been too good for the first half of the year. There's no real heat. Like for the first time through two years, three years, there's no real heat.
That's a big deal. That's a, that should matter. That should matter to people. But where that could be a problem is if the cherries aren't the size that everybody needs them to be.
So, so we could have the volumes, we may not have the weight, um, or the quality. There could be a lot of mitigating factors. And that's why I asked how, go ahead. Do you know what one of the major impacts of those screen sizes is?
How much rain you're getting? Yeah. How hot it is. Right.
Neither of those have been problems up to this point. But I also know that there's been some unusual circumstances that have happened in Brazil this year, where if I'm explaining this correctly, and if I get this wrong, Felipe is yelling into his headphones right now saying, why did you fuck this up? Um, from what I understand, the, the buds, when, when the, the flowers essentially didn't open up, uh, when on, in some regions, the petals on the flowers happened, but didn't open up. Uh, I would encourage everybody who is able to go take a look at the conditions in Brazil in the next month and a half.
Okay. Okay. And again, and I would also say that I, I realize I'm coming across as saying I have a view, but I'm, again, this is a, but your paid to work. Like, that's your job.
My job is to forecast the weather and tell you what I think. Yeah. And, and, you know, I think that what I think is that, uh, if, if I were to go and write the, as good of a weather scenario in December, as I'm seeing right now, I couldn't write anything better than what I'm seeing. Okay, good.
Um, I mean, we need it. We need this year to be a bumper crop for everybody. We still have to get through, we still have to get through Jan, Feb, March, right? To make sure that we really fill those grains.
But you know, to me, I'm always concerned. The number one thing I'm concerned about more than anything else is that flowering period. It has to turn up on time. It has to show up on time.
You have to avoid the heat. And if you can get through the first half of the season without that, that just, that sets the base really much higher than the alternative scenario. So I think, you know, that's, that's a big deal to me. So the other, the other thing I would say, leads to your point about missing the forest through the trees is, you know, I think, Do we believe as an industry that we are 12 months from now in the same type of coffee market or not?
Are we still seeing four or $5? If you were to ask anybody, if you were to ask most people, I think under their head, they would say no. They're all just waiting. Why?
Because they see Brazil. Because they see Brazil. Because they see the fact that, you know, Colombia had a really big crop last year. Because they see that the VS, even though the crop is slow, it's still a really nice crop.
Like it's still a really, looking like a really good crop. So it's not a repeat of the past two years. It's just, it's fundamentally different. We did not have that dryness and heat during the flowering across multiple places.
And people know that. It's just about figuring out how long it takes for people to feel it, for that coffee to show up, for that coffee to arrive, for roasters to be able to buy it and roast it, and then for the supply to look, everyone to say, okay, let's take a breath. We're cool. And I think it does, it does take time.
And I think that it's going to take time to get out of this. And then, you know, the other question I would pose is, are people going to drink as much coffee at $11.99 a pound versus $9.99 a pound? Which I think is another thing that people are going to have to assess. A thousand percent.
You know, we've been calling, we're calling this a coffee crisis, the period that we're in, because the very many things that are converging all at the same time. The weather, the price, the supply, the logistics, the labor, you know, lack of succession for, for coffee farms being passed on, uh, cost of living crisis. All of these individual crises are all colliding at the same time in coffee. So we're calling it a coffee crisis.
And one of the questions that we keep getting about with regards to the price is, Lee, the prices are high right now. Historically, when the prices are high, we're just waiting for them to collapse. So this is a lot of farmers are talking about this, right? And historically, the price shoots up, never as high as what it has.
Obviously this is a record price this year, but it hasn't collapsed as quickly as most people have thought it would collapse. This is where I want to talk about this price. These consultants who are paid to give these predictions well ahead of the harvest, and they constantly revise these numbers. And they push the prices up and down and up and down and up and down.
And in squiggly lines all over the place. But we have not seen the crash of the price that a lot of people are waiting for. And what you're saying, if I'm understanding it correctly, is Brazil is expected, we don't know for sure yet, but from your estimation from every, all the data you're seeing right now, the estimation is that Brazil is going to have a killer crop. And if they have a killer crop, the supply will be high for 2026.
And that will have an impact on the price. And it should have, the impact it will have is it will most likely drive the price down. It may not even be because of the supply. It could be because speculators think that the price should go down.
And because of the news that they hear from people. Am I understanding that correctly? Yeah, I think that in basic terms, you're getting the general idea. I think that is probably the standard idea of most people in the trade in this industry today.
I think that if you're, if you're someone who's not as deep in the weeds, you're not going out on crop tours in Brazil. You're not looking at things, you know, getting a global view. I can understand why, you know, you're like, this feels like it's never going to end. I mean, there's other reasons for it to stay up other than just the supply.
You have funds that have pushed spreads to record levels. Like the, the, the March, uh, the March, May is 17 cents. The deck March was 31 cents. I mean that begets systematic fund buying, like hedge fund buying that build positions based on those sorts of things.
And I think as important to the price, you know, part of the reason the price hasn't really collapsed yet is because those spreads have not collapsed yet. The spreads have remained really, really strong. And that makes other people want to buy coffee as a future, as a, as an investment. So there's a lot of different reasons why this has been kind of like this self-fulfilling prophecy of it's just going to go up, bro.
Like it's just going to keep going. Um, but eventually in time, um, my belief is that the fundamentals will win out. And, and to me, the key to that is the Viet crop get into the destination, the Brazil crop get into the destination, the centrals get the destination. They haven't gotten there yet, but they're starting to.
As we wrap up this episode, we'll just, you did mention Vietnam there. Um, there were some recent weather challenges in Vietnam. Tell us how significant the floods were to the Vietnamese crop, because there's a whole bunch of different stories out there about this. Sure.
I think the one thing to remember with, and it's difficult is to separate our what's happening to coffee with what's happening to the world. Yeah. It's tough to do. It's tough to do.
But in the business of what we're doing, we have to remember that things are in context of total supply affected. What we know is a Viet harvest is slow because of these excess rains. What we know is that a small percentage of acreage was flooded out for sure. We know the both of those things.
What we unfortunately also know is that for those who lost their production, unfortunately, it's not going to be a big