Central American coffee quagmire: in Central America, the effects of weather within the different regions has caused a chain reaction along the lines of production and exporting coffee. The results of this voyage is unclear, but the industry does remain hopeful.

The coffee year in Central America, which started on October 1, 2006, has been developing and enveloped with many 'special events.' The effects of El Nino, for example, were to blame for excess rainfall in regions of Guatemala, Honduras, El Salvador and Nicaragua. Due to this, during the harvesting months of November and December, the ripe coffee bean fruit began to split open, exposing it to the elements that ultimately cause quality deficiencies.

This rain-effect on the coffee cherry-fruit can be traced through the entire process of transformation, when--at the depulping stage--the inside bean will demonstrate the damage and risks of water and sun exposure, and the fact that spotted beans will conform a greater percentage of non-exportable quality.

Much to our surprise, however, once cleaned and sorted, the quality of the Salvadorean coffee this season has improved against last year's (2005-2006). A nice body, with a floral chocolaty bouquet, can be found all across. Not so alluring is the quantity produced, as El Salvador does project an end of season crop total of 1,260,000 bags of 60-kg., of which only 29% remain uncommitted as of February 28, 2007.

Similarly to El Salvador, Nicaragua has produced 900,000 bags of 60-kg, which is a low size crop. Certain percentages may have been left to dry out in the trees, due to a shortage of pickers. Despite this, they calculate that 340,000 bags of 60-kg or 34% of fine coffee can be produced for the remaining of the season.

The realities of Guatemala, Honduras and Costa Rica, on the other hand, are the result of long-term policies, organization, planning and compromise, even through one of the worse coffee price crises recently experienced on their local coffee industry, which increased the quantity of coffee produced with respect to previous years. Guatemala will have produced in the current season 3,520,000 bags of 60-kg, counting on 41% of its crop still unsold as of February 28, 2007. Costa Rica and Honduras have produced 1,475,000 and 2,875,000 bags respectively, with 15% and 23% remaining to sell during the season.

From these calculations then, Central America will have an exportable and fresh 2006-2007 crop of 10,030,000 bags of 60-kg, and with the probability of a lower Vietnam output and Brazil's upcoming decrease, the region can become a vital, worldwide supplier of other mild types complementary to Colombia. Nevertheless, late season trading in Central America could be a mirage due to dwindling availability, quality consistency and reliable suppliers.

Mood Swings, Financial Pressures and Trade Tactics

The prolonged price crisis of 2000-2005 has brought out leaner and more astute negotiators locally, who thus far have sold early into the season. Much of the negotiations in Central America respond to the sellers' mood swings, independent financial pressures, and whimsical logics about the New York NYBOT market.

The NYBOT, for local players, is only utilized when the market is bullish, expecting and demanding the highest last traded quote for their goods, while closing their eyes on the daily market reversals. This, along with the oversold positions of fine coffees, versus the undergraded qualities, locally creates an artificial expectation for the producers that gamble only on their physical quantities.

Most producers across Central America are used to the method of either selling their entire crop at an expected high price, or doing partial sales throughout the year, in the hopes of reaching a satisfying average. In both cases, they hold on to the physical goods and avoid using any hedging financial instruments, hoping to eventually make a better deal. The exporting companies, on the other hand, add fuel to this awkward reality, by stepping in and out of the squabble with situational pricing that can only provoke the local situation, and reiterate to the producer the righteousness of his speculative practices.

The perils of such a dilemma is in the quality of coffee that from the beginning is a raw material deficient of nutrients from low production farms, with little or no fertilizations, rapid and abrupt picking practices (picking green and red beans together and delivered to the millers for them to sort). In this process, the coffee quality becomes an average neutralized coffee, since the finest beans are diluted across a mangle of ordinary ones and the placed on hold at different warehouses. Meanwhile, export continues to anticipate for the producers to fix prices internally.

Storage and Transport Conditions

Certain warehouse conditions, especially in mountainous regions or heat sensitive areas, can add on to the detriment of quality. Raw Coffee, unlike wine, will slowly deteriorate in storage. The beans slowly fade and become flat or acquire an 'oldish' taste, thus loosing their punch in the cup, and luster at the roasting stage. Raw coffee beans are mostly stored in their 'pergamino' or parchment condition, which is a beige-colored thin layer of skin that covers the bean and is milled before shipment. By storing coffee in parchment, the degrading process is retarded and once it is milled, the so-called green bean should not be delayed in transport to the roaster for a fresh roast and brew.

Due to its country size and reduced distances from the farms to the mills. El Salvador has a favorable situation in Central America with respect to warehousing, preparation for export, and good transit times. In Nicaragua, however, coffee farms are in beautiful setting, but far away in mountainous regions, and unless the shipment destinations are the West Coast of the U.S., transit time inland-haulage to the Ports of neighbouring Guatemala or Honduras in the Caribbean side of Central America, is long.

For Guatemala, Honduras and Costa Rica, which have ports in the Caribbean coast, the logistics have been refined over many decades of coffee culture, but nevertheless still have to remain careful in the handling of coffees while in transport to industrial areas from remote farms that are only accessible through mountainous, unpaved roads.

The Future and Possible Changes

While some countries will continue on a healthy journey to safeguard their coffee supply, local economies in all Central American nations will have a sluggish growth pattern, where coffee producers evaluate their cost-benefit ratio with respect to their coffee plantations and accumulated debts. The hopes of higher prices in the future, meanwhile, is offset by the real output of each individual farm. Apart from Colombia and Peru, there have been no considerable new plantings of coffee trees in all other Latin American mild-Arabica producing countries.

Many exporters in Central America have struggled this year to meet their export expectations and compromises. Small producers of good quality coffees and efficient growers have seen a change in attitude from the local intermediaries and buyers that aggressively court them, and more often than not, are willing to pay them better prices than the international traders of NYBOT.