Coffee’s Wake Up Call

Over the past few years, as I’ve gotten older, I’ve tried and tried all kinds of hobbies from beer making to BBQ, from making wine to hunting and now I’m on to my most recent conquest…

Roasting coffee.

Does it have anything to do with age? It could… but I don’t think so; I think it has more to do with natural curiosity. I like to figure out just how thing work or are made and say, “I can do that“.

You see, if my experience has taught me anything, it’s that homemade “anything” is better than what you can get in the store… period. I don’t care what it is – the flavor is just better, you know the ingredients used or needed to get a better product and you get the satisfaction of knowing you did it.

With beer – I like to stick with the Belgium ales. They are truly magnificent works of art if you savor the flavor of a well-balanced, thick and full-bodied brew with one hell of a kick. I’m not talking about that wimpy 4% buzz you’d get from Bud or Bud Light. I’m talking 8% to 15% alcohol content of Belgium goodness. One brew and you’re feeling like you had 4 of those lesser ones.

With wine it’s much the same. I chose to go the route of thick reds… like merlot and cabernet. I’ve found that with both wine and beer, you can buy more if you make it yourself and in most cases, a lot more, but the only thing you have against you is time; as it takes a lot of time to get a good beer and wine aged to perfection.

If you’ve been reading the weekly articles we send out, you may of heard about how I got started in coffee – it’s a very irritating situation and a very long story – but it concludes with me starting to roast my own coffee the following week. Now, I’m never without a premium cup.

But there’s been a new development that has got me rethinking my process…

When I started roasting coffee, I could get green coffee beans (un-roasted) from $2.25-$5 per pound depending on the variety. I would get coffee from Honduras for $2.25 and Kenyan AA beans for maybe $5 depending on the wholesaler. But…

Much like the prices of beef and pork have done over the past few weeks, coffee is now starting to see a significant rise in price. What I could get for $2.25 is no longer the case…

But why? What’s happening to send prices through the roof?

Look to the source of where most of the coffee is grown – Latin America.

In Latin America, there is a disease affecting the plants called “Coffee Rust”. It’s running amuck and devastating the Arabica crops, one of the chief beans we use around the world. It’s becoming such a problem, that the US government is getting involved in trying to stop it before it destroys the coffee crop, and industry, beyond repair.

Ground zero for this disease is Guatemala, Honduras, Costa Rica and El Salvador – all the top producers of top quality beans in Latin America

Washington is estimating that production could be down anywhere from 15 to 40% in the coming years. That kind of loss would equate to about 500,000 people losing their jobs. Not only that…

They suggest that crop loss + job loss = hunger, poverty, drug trafficking and violence.

So what does this all mean?

Well, I see prices of coffee slowly rising here in the states in regards to end-result retail drinks and beans you buy in the store and we won’t see any kind of relief until the coffee rust gets controlled. Starbucks in store coffee prices have risen quite a bit lately.

Will prices double or triple for your Starbucks latte?

Probably not right away, but keep in mind, it could be a possibility.

What I recommend for investors is to take a look at iPath’s coffee ETN (Exchange Traded Note) which is CAFE: $23.71, sooner than later.

We’ll definitely be able to make a bit of profit on this before it’s all said and done.

Until then…

Looks like I’ll be paying a little bit more for my coffee roasting hobby – which is still fine by me – as I’m still paying less than I would at the store. For how long though, I’m not sure…

Hopefully those CAFÉ profits will offset my costs!

 By Tim Fields