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West Coast Trade stepping out as coffee futures/Nestle beverage move in.

There is good reason to celebrate at this year's annual gathering of the Pacific Coast Coffee Association (PCCA). Within the span of a year, the West Coast trade has compiled an impressive list of achievements, among them the delivery of a futures contract to San Francisco/Oakland and the selection of San Francisco as the new home of the Nestle Beverage Group. These developments have made the West Coast a more important place to the coffee industry, particularly for commercial coffee, than it was just one year ago.

The single most important cause for excitement must be the delivery of the futures contract to San Francisco/Oakland. "A coffee futures contract for San Francisco/Oakland," says Allen Sasaki of Lonray Coffee International and outgoing president of the PCCA, "means that coffee can come here for certification. Among other advantages, this is certain to generate more coffee traffic on the West Coast. " The first available coffees on the new futures market will come in July 92.

Sasaki goes on to explain that this new arrangement, which required the approval of the Coffee, Sugar & Cocoa Exchange (CSCE) and the Commodity Futures Trading Commission (CFTC), will offer West Coast importers more liquidity, the ability to convert coffee into cash, by giving them the Exchange itself as an alternative market. Importers bringing coffees into San Francisco/Oakland will be able to tender or sell directly to the Coffee, Sugar & Cocoa Exchange and enjoy the benefits of this guaranteed market rather than having to find a roaster to buy. Prior to the futures agreement, only coffees entering port in New York and New Orleans could be certified and then sold directly to the Exchange.

The futures contract will also provide for a larger spot market on the West Coast, notes Karen Neves, manager of commodities for the Nestle Beverage Group, San Francisco, who supplied much of the supporting statistical analysis for the PCCA proposal. Because exporters and importers will be able to certify their coffee in San Francisco/Oakland and get cash for it more quickly, they will find it less risky to bring coffee to port here. And by eliminating some of the risk, we should see an increase in the supply of unsold coffee. Hence a larger spot market.

For West Coast roasters, a larger spot market will mean the ability to carry less inventory than they alive had to maintain in the past. Spot coffee prices will probably become more competitive as well. One important footnote: the futures price in San Francisco/Oakland will be discounted by 2.25 cents/lb. below the price on the New York Exchange. Despite this discount, the contract is "a good foot in the door to the futures market," says Neves.

Though critical to the expansion of commercial coffee on the West Coast, the futures contract in San Francisco/Oakland is only a part of a worldwide trend to increase the liquidity of the Arabica coffee market by decentralizing contract trading. The Euro-Differential Coffee Futures, which took effect on April 5 and which accounts for price differences in taking European versus New York delivery, is part of the same trend (see April issue, Tea & Coffee Trade Journal.

Sasaki is pleased to acknowledge the efforts of the PCCA subcommittee charged with pursuing the futures contract and Dub Hay, vice president of commodities trading for the Nestle Beverage Group, in particular who worked closely with the New York exchanges for years to bring it about.

What is a coffee futures contract?

For those new to the futures market, a coffee futures contract is a legally binding agreement to either deliver or take delivery of a specified coffee during a designated month in the future at a market derived price. The Coffee, Sugar & Cocoa Exchange itself simply provides "a public setting where members can conduct transactions for the future delivery of coffee, and where prices can reach their natural levels under the free market system. "

Trading in futures of coffee and other commodities is regulated by the CFTC, created in 1975 as an independent federal agency to administer and enforce the Commodity Exchange Act. This Act prohibits futures trading except on an exchange that the CFTC has designated as a "contract market."

Nestle Beverage Group in San Francisco

The new headquarters for the Nestle Beverage Group (which includes its coffee division) will be located in San Francisco, that according to a recent decision by a Nestle USA steering committee. Dick Curd, media director for Nestle USA says the steering committee's recommendation was in large part based upon the longstanding presence in San Francisco of Hills Bros., which is now part of Nestle.

The new futures contract and the Nestle Beverage Group will have a ripple effect industry-wide, from ports and warehouses to trading and trucking. There is also discussion of a uniform contract backed by both the National Coffee Association and the PCCA, which would help make trading more seamless.

Both of these developments could hardly have come at a better time. Until quite recently, it looked as if the coffee trade was retreating from the West Coast. Companies were re-evaluating the offices they maintain out here, and beginning to think they were no longer worthwhile to maintain. Now, not only are these companies keeping their West coast addresses, but other East Coast-based firms are looking to strengthen their presence in this region in order to be in a better position to do business with the Nestle giant.

Happy 60th birthday, PCCA.

West Coast: Newly named ports expect better balance

Coffee traffic should really start percolating in San Francisco in 1992, according to the Journal of Commerce.

At least that is what port and coffee executives here expect. The Port of San Francisco was named an official coffee exchange port by the Coffee, Sugar & Cocoa Exchange this past March.

"It will have a large impact--about 500,000 bags," said Joseph Tudisco, president of Western Rim Co., which operates the main coffee warehouse operation in San Francisco. "It's a welcome sign for those of us in the coffee business."

Previously coffee futures traffic -coffee that is supplied outside of U.S. coffee quotas-could only be channeled through New York or New Orleans. Coffee routed through San Francisco and other ports was counted toward trade quotas.

As an exchange port, however, San Francisco can receive futures coffee and store it until it has a buyer. That will give coffee buyers playing the futures market a West Coast alternative in coffee purchases.

"With just New York and New Orleans it created a geographic imbalance," said Dub Hay, vice president of commodities for Nestle Beverage Co. in San Francisco.

Nestle, which operates Hills Brothers Coffee Co. and two other major coffee buyers, Kraft General Foods Corp. and Folger's Coffee Co., have facilities in the San Francisco Bay area. Their regular coffee shipments plus California consumer demand has made San Francisco the nation's third largest coffee port.

"The exchange designation means a spot market will develop here," said Michael Huerta, executive director of the port. Once that market starts the port can expect up to 1 million additional bags of coffee within two years, he said.

"It's the market power we have and the ability to handle it," said Huerta.

In 1990, the port handled about 3 million bags of coffee. The port, according to statistics from the port, handles about 50% of the West Coast's coffee business, and 79% of all coffee imports from South America to the West Coast of the U.S.

The Port of Oakland was somewhat miffed that amid all the hoopla raised by San Francisco over its new status as a West Coast gateway for coffee exchange traffic, no one noticed that it, too, is included as part of that gateway.

The Coffee, Sugar & Cocoa Exchange's notice designates San Francisco as the primary port. But tucked away in the exchange's rules is a clause qualifying Oakland for status as an entry point for exchange coffee shipments as well.

San Francisco coffee executives concede that Oakland is in there, but they are quick to note that San Francisco interests spearheaded the designation effort and that San Francisco has the lion's share of coffee traffic in the region.

San Francisco wins designation for coffee commodities futures

The Bay Area's coffee industry gets a big break in 1992 with San Francisco's recent designation as one of only three primary distribution points in the nation for coffee commodities futures.

It's a shot in the arm for one of San Francisco's oldest and largest maritime institutions. The Port's 1989 volume of 82,000 metric tons of coffee amounted to nearly $170 million in dollar value, making it the port's second-large commodity.

The first new premium coffee deliveries to the Port of San Francisco will occur with 1992 futures contracts regulated by the U.S. Commodity Futures Trading Commission (CFTC). The Commission's Coffee, Sugar & Cocoa Exchange board of directors began rulemaking last year which lead to the Port's designation as a primary port on February 21, 1991.

Previously, only New York and New Orleans could accept "C Futures" coffee. "The addition of San Francisco as a delivery point will increase the flexibility of the Coffee "C" contract and, in turn, will increase its utility to the coffee trade, " Coffee, Sugar & Cocoa Exchange president Bennett J. Corn said.

Exchange listing carries with it a 2.25-cent discount on coffee delivered to San Francisco. Coffee has been a maritime mainstay literally since San Francisco's origin as an outpost of the Spanish empire. It has had its ups and downs, but premium Arabica off-loading here on futures contracts clearly adds to the positive trend.

Experts say a spot coffee market in premium beans is likely to develop. Boutique and gourmet coffee roasters account for ever-larger shares of consumption, and industry experts expect to see new ones cropping up in San Francisco and the Bay Area to take advantage of the increased supply of premium beans.

Coffee has been on a modest, but steady, growth curve over the past several years. San Francisco had 50% of all west coast coffee business in 1989 and now accounts for 79% of all coffee imports from South America to the West Coast of the U.S. In the Bay Area, San Francisco handles 72% of all imports world wide, up from 64% in 1986. San Francisco handles 91 of Bay area coffee imports from Latin America.
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Title Annotation:San Francisco and Oakland's storage and export/import opportunities with the coffee trade
Author:Hackeling, Joan
Publication:Tea & Coffee Trade Journal
Date:May 1, 1991
Previous Article:Sigma and the round tea bag - it's not square!
Next Article:Back to school for British tea-drinkers.

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