The Price of Black Gold

(Page 4 of 12)

Turns Out "Black Gold" is Hardly a Misnomer..."

Tremendous fortunes are made in the coffee business. Black Gold does make a brief foray into the world of coffee commoditization, but it may be helpful to know a few more details. A commodity is a type of good that is in demand, and is uniform in quality regardless of where it is produced. With the advent of a globalized commodity exchange, the worldwide price for a commodity is the same everywhere.

Gold and oil are excellent examples of commodities. Regardless of how much it costs a supplier to mine gold, there is a set market price for gold, depending on the supply volume. It doesn't matter if that gold comes from the United States or from China, because one kilo of gold is identical to another kilo regardless of its origins. Coffee is another example of a commodity sold on the New York Mercantile Exchange; in fact, coffee is the second-most valuable commodity on the exchange market after oil!

Commodity traders deciding the price of coffee

Each and every working day, investors and traders help set the global price of coffee. Currently, most of the worlds coffee production is of the lower quality Robusta bean. However, as coffee tastes have become increasingly diversified, the luxury coffee market has taken off (e.g. Starbucks, Seattle's Best Coffee). As a result, the demand for specialty coffee such as Arabica coffee, region-specific coffee and organic coffee has also increased. Often, these types of coffees are more expensive because they require more skill to cultivate. Arguably, this means that these types of coffee are not commodities since the region and type differentiate them from regular coffee. However, most coffee farmers are simple, hard-working men and women who may not necessarily understand the true potential value of their coffee.