Buying coffee in the producing countries—Transporting coffee to the consuming markets—Some record coffee cargoes shipped to the United States—Transport over seas—Java coffee "ex-sailing vessels"—Handling coffee at New York, New Orleans, and San Francisco—The coffee exchanges of Europe and the United States—Commission men and brokers—Trade and exchange contracts for delivery—Important rulings affecting coffee trading—Some well known green coffee marks
In moving green coffee from the plantations to the consuming countries, the shipments pass through much the same trade channels as other foreign-grown food products. In general, the coffee goes from planter to trader in the shipping ports; thence to the exporter, who sells it to an importer in the consuming country; he in turn passing it on, to a roaster, to be prepared for consumption. The system varies in some respects in the different countries, according to the development of economic and transportation methods; but, broadly considered, this is the general method.
Buying Coffee in the Producing Countries
The marketing of coffee begins when the berries are swept up from the drying patios, put in gunny sacks, and sent to the ports of export to be sampled and shipped. In Brazil, four-wheeled wagons drawn by six mules, or two-wheeled carts carry it to the nearest railroad or river.
Brazil, as the world's largest producer of coffee, has the most highly developed buying system. Coffee cultivation has been the chief agricultural pursuit in that country for many years; and large amounts of government and private capital have been invested in growing, transportation, storage, and ship-loading facilities, particularly in the state of São Paulo.
The usual method in Brazil is for the fazendeiro (coffee-grower) or the commisario (commission merchant) to load his shipments of coffee at an interior railroad station. If his consignee is in Santos, he generally deposits the bill of lading with a bank and draws a draft, usually payable after thirty days, against the consignee. When the consignee accepts the draft, he receives the bill of lading, and is then permitted to put the coffee in a warehouse.
Storing at Santos
At Santos most of the storing is done in the steel warehouses of the City Dock Company, a private corporation whose warehouses extend for three miles along the waterfront at one end of the town. Railroad switches lead to these warehouses, so that the coffee is brought to storage in the same cars in which it was originally loaded up-country. The warehouses are leased by commisarios. There are also many old warehouses, built of wood, still operated in Santos, and to these the coffee is transferred from the railroad station either by mule carts or by automobile trucks.
At the receiving warehouses, samples of each bag are taken; the tester, or sampler, standing at the door with a sharp tool, resembling a cheese-tester, which he thrusts[Pg 304] into the center of the bag as the men pass him with the bags of coffee on their heads, removing a double handful of the contents. The samples are divided into two parts; one for the seller, and one that the commisario retains until he has sold the consignment of coffee covered by that particular lot of samples.
The Disappearing Ensaccador
In the old days it was the custom every morning for the ensaccadores, or baggers, and the exporters or their brokers, to visit the commisarios' warehouses and to bargain for lots of coffee made up by the commisario.
In the Santos market, until recent years, the ensaccador, or coffee-bagger, often stood between the commisario and exporter. When American importing houses began to establish their own buying offices in the Brazilian ports (about 1910) to deal direct with the fazendeiro and the commisario, the gradual elimination of the ensaccador was begun. Today he has entirely disappeared from the Santos market, and is disappearing from Rio de Janeiro, Bahia, and Victoria.
Coffee reaches Santos in a mixed condition; that is, it has not been graded, or separated according to its various qualities. This is the work of the commisario, who puts each shipment into "lots" in new "official" bags, each of which bears a mark stating that the contents are São Paulo growth. If the coffee is offered for sale by the owner, the commisario will then put it on the "street," the section of Santos given over to coffee trading.
The commisario works with samples of the coffee he has to offer and only puts out one set at a time. He names his "asking" price, known locally as the pedido, which is the maximum rate he expects to get, but seldom receives. A set of samples may be shown to twenty-five or thirty exporting houses in a day, one at a time. When the sample is in the hands of a firm for consideration, no other exporter has the right to buy the lot even at the pedido price, and the commisario can not accept other offers until he has refused the bid. On the other hand, if a house refuses to give up the samples, it is understood that it is willing to pay the pedido price. The firm first offering a price acceptable to the commisario's broker gets the lot, even though other houses have offered the same price.
When a lot is sold, the samples are turned over to the successful bidder, and he then asks the commisario for larger samples for comparison with the first set.
Commisarios Make as High as Nine Percent
Having sold the coffee of a given planter, the commisario often gets as much as nine percent for his share of the transaction. Unless the bags have been furnished to the planter at a good rental, the coffee must be transferred to the commisario's bags; and for this the planter pays a commission.
Formerly the coffee, being rebagged by the ensaccador, was manipulated in what is called ligas; that is, mixing several neutral grades from various lots to create an artificial grade; or, more properly speaking, a "type," desirable for trading on the New York market.
Grading and Testing in Brazil
Having bought a lot of coffee, the exporter's next step is to grade and to test it. Grading is generally done in the morning and late afternoon, the hours from one to half-past four being devoted to making offers. The afternoon grading is done by sight. The morning examinations are more thorough, some progressive exporting houses even cup-testing the samples. Samples are compared with house standards, and with the requirements that have been cabled from the home office in the consuming country. Some of the coffee is roasted to obtain a standard by which all "chops" (varieties) are then graded and marked according to quality—fine, good, fair, or poor. Quality is further classified by the numerals from two to eight, which standards have been established on the New York Coffee and Sugar Exchange, and are described farther on in this chapter. Some traders also use the terms large or small bean; fair, good, or poor roasters; soft or hard bean; light or dark; and similar descriptive terms.
When a lot is ready for shipment overseas, the commisario stamps each bag with his identifying mark, to which the buyer or exporter adds his brand. If the commisario is ordered before eleven in the morning to ship a lot of coffee, he must be paid before three in the afternoon of the same day; if he receives the order after eleven, payment need not be made before three in the afternoon of the following day. Generally the terms of sale are full settlement in thirty days, less discount at the rate of six percent per annum for the unexpired time, if paid before the period of grace is up.
Dispatching and Capitazias
The exporter collects his money by drawing a draft against his client on deposit of bill of lading, cashing the draft through an exchange broker who deducts his brokerage fee. The exporter must obtain a consular invoice, a shipping permit from both federal and state authorities, and pay an export tax, before the coffee goes aboard the ship. This process is known as "dispatching," while the dock company's charges are known as capitazias.
In practically all coffee-growing sections the small planter is helped financially by the owners of processing plants or by the exporting firms. The larger planters may even obtain advances on their crops from the importing houses in New York, Havre, Hamburg, or other foreign centers.
The Exchange at Santos
A new coffee exchange began business at Santos on May 1, 1917, sitting with the Coffee Brokers Board of Control. This Board consists of five coffee brokers, four elected annually at a general meeting of the brokers of Santos, and one chosen annually by the president of the state of São Paulo. Among the duties of the Board are the classification and valuation of coffee, adjustment of differences, etc.
Transporting Coffee to Points of Export
Transportation methods from plantation to shipside naturally vary with local topographical and economic conditions. In Venezuela, the bulk of the coffee is transported by pack-mule from the plantations and shipping towns to the head of the railroad system, and thence by rail to the Catatumbo River, where it is carried in small steamers down the river and across Lake Maracaibo to the city of Maracaibo. In Colombia, coffee is sent down the Magdalena River aboard small steamers direct to the seaboard. In Central America, transportation is one of the most serious problems facing the grower. The roads are poor, and in the rainy season are sometimes deep with mud; so much so that it may require a week to drive a wagon-load of coffee to the railroad or the river shipping point.
Buying Coffee in Abyssinia
Coffee is generally grown in Abyssinia by small farmers, who mostly finance themselves and sell the crop to native brokers, who in turn sell it to representatives of foreign houses in the larger trading centers. Trading methods between farmer and broker are not much more than the old system of barter. In the southwestern section, where the Abyssinian coffee grows wild, transport to the nearest trading center is by mule train, and not infrequently by camel back. In the Harar district, the women of the farmers living near Harar the market center, carry the coffee in long shallow baskets on their heads to the native brokers. In the more remote places the coffee farmer waits for the broker to call on him. From the town of Harar the coffee is transported by mule or camel train to Dire-Daoua, whence it is shipped by rail to Jibuti, to be sent by direct steamers to Europe, or across the Gulf of Aden to Aden in Arabia.
Ten different languages are spoken in Harar. In order successfully to engage in the coffee business there, it is necessary either to become proficient in all these tongues, or to engage some one who is.
When the coffee is brought, partially cleaned, into Harar by donkey or mule train, it is first taken to the open air custom-house (coffee exchange) in the center of the town, where a ten-percent duty (in coffee) is exacted by the local government, and one Abyssinian dollar (fifty cents) is added for every thirty-seven and a half pounds, this latter being Ras Makonnen's share. As soon as the native dealer has released to him what remains of his shipment, he takes it out of the custom-house enclosure and disposes of it through the native brokers, who have their little "office" booths stretching in a long line up the street just outside the custom-house entrance.
There, a brokerage charge of one piaster per bag is paid by the buyer, and the coffee then becomes the property of the European merchant. In some cases it is put through a further cleaning process; but usually it is shipped to Jibuti or Aden uncleaned. Arriving at Jibuti, there is a one-percent ad valorem duty to pay. At Aden, there is another tax of one anna (two cents) to be paid to the British authorities.
Since 1914, however, Abyssinian coffee has been exported largely through the Sudan, a much shorter and less expensive trip than that to Adis Abeba and Jibuti. Now the coffee is carried by pack-train to Gambela on the Sobat River; and thence by river steamer to Khartoum, where it is loaded on railroad trains and sent to Port Sudan on the Red Sea.
Buying Coffee in Arabia
Most of the coffee in Arabia is grown in almost inaccessible mountain valleys by native Arabs, and is transported by camel caravan to Aden or Hodeida, where it is sold to agents of foreign importing houses. Mocha, once the principal exporting city for coffee, was abandoned as a coffee port early in the nineteenth century, chiefly because of the difficulty of keeping the roadstead of the harbor free from sandbars.
In Aden there is a kind of open-air coffee "exchange" (as in Harar) where the camel trains unload their coffee from the interior. The European coffee merchant does not frequent it, but is represented by native brokers, through whom all coffee business is transacted. This native broker is an important person, and one of the most picturesque characters in Aden. He receives a commission of one and a half percent from both buyer and seller. Certain grades of coffee are purchasable only in Maria Theresa dollars; so a knowledge of exchange values is essential to the broker's calling.
In making coffee sales, the negotiations between buyer and seller are carried on by means of finger taps under a handkerchief. The would-be purchaser reaches out his hand to the seller under cover of the cloth and makes his bid in the palm of the seller's hand by tapping his fingers. The code is well understood by both. Its advantage lies in the fact that a possible purchaser is enabled to make his bid in the presence of other buyers without the latter knowing what he is offering.
Buying Coffee in Netherlands India
In the Dutch East Indies cultivation of Coffea arabica has diminished, the decay of the industry beginning when Brazil and Central America became the dominant factors in the green market. Not so many years ago coffee growing and coffee trading were virtually government monopolies. Under government control each native family was required to keep from six hundred to a thousand coffee trees in bearing, and to sell two-fifths of the crop to the government. It was also compulsory to deliver the coffee cleaned and sorted to the official godowns, and to sell the crop at fixed prices—nine to twelve florins per picul previous to 1874, although forty to fifty florins were offered in the open market. Later, the price was advanced; until about 1900 the government paid fifteen florins per picul for coffee in parchment. All government coffee was sold at public auction in Batavia and Padang, these sales being held four times a year in Batavia and three times a year in Padang.
Coffee from private estates, not under government control and operated by European corporations or individuals, has now succeeded the government monopoly coffee. Private-estate crops are sold by public tender, usually on or about January 28 of each year. If the owners do not get the price they desire in Batavia or Padang, the coffee is sent to Amsterdam for disposal. Some coffees always are sent to Holland; because the directors of the company get a commission on all sales there, and also because the coffees are prepared especially for the Dutch market. The Hollander wants his coffee blue-green in color.
Loading Coffee at Santos
In Brazil, when the coffee has been rebagged and marked by both the commisario and the exporter, the coffee is again sampled. These samples are compared with those by which the purchase was made; and if right, the bags are turned over to the dock-master, who sets his laborers to work loading ship. Two methods are used at Santos. The old familiar style of hand labor is still in evidence—men of all nationalities, but largely Spaniards and Portuguese, take the bags on their heads and carry them in single file up the gangplanks and into the hold of the ship. The dock company, however, operates a huge automatic loading machine, or belt, which saves a great deal of time and labor. In other Brazilian ports all loading is done by manual labor.
Recently, at the suggestion of the Commercial Association of Santos, the minister of transport of São Paulo ordered that coffees destined for legitimate traders should be transported during four days of the week, and those of a speculative nature during the remaining two days. A premium of as much as five milreis a bag has been paid by speculators in order to obtain immediate transport.
Shipping Coffee from Colombia
As Colombia ranks next to Brazil in coffee, a brief description of its transportation methods, which are unique, should be of interest to coffee shippers. A goodly portion of Colombia's coffee exports comes from the district around the little city of Cucuta, whose official name is San José de Cucuta. It is the capital of North Santander, is situated in a beautiful valley of the Colombian Andes mountains that is watered by several rivers, and is only about a half-hour's ride by motor from the Venezuelan frontier.
Due to its geographical position, Cucuta serves as the most convenient inland port and commercial center for most of the department of North Santander. For the same reason, it is forced to depend on Maracaibo as its seaport, even though the Venezuelan government has a number of annoying laws controlling the commerce thus conducted. The Colombian ports of Baranquilla and Cartagena on the Atlantic are too distant from Cucuta to be available; and a large part of the traffic would have to be done on mule-back across one of the most formidable ranges of the Colombian Andes, involving high cost and delay in transportation. Yet its frontier position makes it possible for Cucuta to have important commercial relations with the neighboring republic of Venezuela, and to enjoy exceptional privileges from the Colombian central government.
A cargo of coffee leaving Cucuta has to go through the following steps on its way to a foreign market:
1. From Cucuta, it travels thirty-five miles by railroad to Puerto Villamizar, a Colombian river port on the Zulia river.
2. At Puerto Villamizar it is loaded into small, flat-bottomed, steel lighters that are taken to Puerto Encontrados by man power. Puerto Encontrados, belonging to Venezuela, is on the Catatumbo river; and the trip from Villamizar takes from two to four days, depending on the depth of water in the river. During high water, river steamers are also used, and make the trip in less than a day.
3. At Encontrados the cargo is loaded on river steamboats more or less of the Mississippi river type, which take it to Maracaibo, Venezuela. Coffee is also carried to Maracaibo by small sailing vessels.
4. At Maracaibo it is taken by ocean vessel, which either carries it direct to New[Pg 315] York or to Curaçao, Dutch West Indies, where it is transhipped to steamers plying between New York and Curaçao. It is obvious that the many transhipments that coffee coming from Cucuta has to undergo greatly retard its arrival at a foreign port; and a cargo sometimes takes a month or more to reach New York.
Coffee from Cucuta is stored in the Venezuelan custom-house, from which it must be shipped for export within forty-five days, or the shipper runs the risk of having it declared by the Venezuelan government for consumo (home consumption) at a prohibitory tariff. Arrangements can be made at considerable cost to have the coffee taken to a private warehouse; but it is no longer possible to make up the chops in Maracaibo, as was done formerly with all the Cucutas. The Venezuelan customs will not even allow the Maracaibo forwarding agent the same chops, as a general rule. Special permission must be obtained to change any bags that are stained or damaged. Schooners from Curaçao have, in the past, carried a great deal of the Colombian coffee to Curaçao.
Port Handling Charges in Brazil
It is almost impossible to list all the various charges for the handling of coffee at the port of shipment in Brazil, the figures not being accessible to outsiders. Some figures, such as warehouse charges and various forms of tax, are obtainable, however. For every bag of coffee which is in warehouse over forty-eight hours from the time of its arrival from the railroad there is a charge of two hundred reis (about five cents). In São Paulo there is an export tax of nine percent ad valorem levied by the state, and in Rio the state tax is eight and a half percent. Then there is a surtax of five francs per bag in Santos, and of three francs in Rio, which goes toward defraying the expenses of valorization. For every bag of coffee that passes over the dock the dock company charges one hundred reis (about two and a half cents).
Some Record Coffee Cargoes
With its superior loading and shipping facilities Brazil has been able to send extraordinarily large cargoes of coffee to the United States since the development of large modern freight-carrying steamships. While 75,000 or 90,000 bag cargoes were of common occurrence just prior to the outbreak of the World War, several shipments of more than 100,000 bags were made in the years 1915, 1916, and 1917. Up to January, 1919, the record was held by the[Pg 316] steamship Bjornstjerne Bjornson which unloaded 136,424 bags at New York on November 17, 1915. Other shipments of more than 100,000 bags were by the Rossetti (December, 1900), 125,918 bags; the Wascana (March 3, 1915), 108,781 bags; the Wagama (October, 1916), 105,650 bags; the American (October 23, 1916), 124,212 bags; the Santa Cecilia (November 2, 1916), 105,500 bags, and the Dakotan (January 6, 1917), which carried 136,387 bags.
To bring green coffee to the consuming markets, both steamships and sailing vessels are used, although the latter have almost wholly given way to the speedier and more capacious modern steamers. Because of its large consumption, a constant stream of vessels is always on the way to the markets of the United States. The majority of these unload at New York, which in 1920 received about fifty-nine percent of all the coffee imported into this country. New Orleans came next, with about twenty-five percent; and San Francisco third, with about twelve percent.
The approximate time consumed in transporting green coffee overseas from the principal producing countries to the United States by freight steamships is shown in the table in the next column.
In some cases, that of Guadeloupe, for instance, the vessels stop at a number of ports, and this lengthens the time. This is also true of vessels running on the west coast of Central America and of those from Aden.
During the World War, one shipment of Timor coffee consumed three and a half years coming from Java to New York. It was aboard the German steamship Brisbane, which cleared from Batavia, July 4, 1914, and fearing capture, took refuge in Goa, Portuguese India, where it lay until Portugal joined the Allies. Then the Portuguese seized the vessel, and turned it over to the British, who moved it to Bombay. Here the cargo was finally transhipped to the City of Adelaide, reaching New York in January, 1918, three and a half years after the coffee left Batavia.
|Transportation Time for Coffee[J]|
|Rio de Janeiro to New York||11 to 16||days|
|Santos||"||"||"||14 to 18||"|
|Porto Rico||"||New Orleans||7||"|
[J] The American Legion and the Southern Cross, of the Munson Line, make the journey from Rio de Janeiro to New York in eleven days. These are freight-and-passenger vessels, and have carried as many as 5,000 bags of coffee at one time.
Java Coffee "Ex-Sailing Ships"
Up to 1915 it was the custom to ship considerable Java coffee to New York in slow-going sailing vessels of the type in favor a hundred years ago. Java coffees "ex-sailing ships" always commanded a premium because of the natural sweating they experienced in transit. Attempts to imitate this natural sweating process by steam-heating the coffees that reached New York by the faster-going steamship lines, and interference therewith by the pure-food authorities, caused a falling off in the demand for "light," "brown," or "extra brown" Dutch East Indian growths; and gradually the picturesque sailing vessels were seen no more in New York harbor. At the end they were mostly Norwegian barks of the type of the Gaa Paa.
It usually took from four to five months to make the trip from Padang or Batavia[Pg 317] to New York. Crossing the Equator twice, first in the Indian Ocean, then in the South Atlantic, the trip was more than equal to circumnavigating the earth in our latitude. In the hold of the vessel the cargo underwent a sweating that gave to the coffee a rare shade of color and that, in the opinion of coffee experts, greatly enhanced its flavor and body. The captain always received a handsome gratuity if the coffee turned "extra brown."
The demand for sweated, or brown, Javas probably had its origin in the good old days when the American housewife bought her coffee green and roasted it herself in a skillet over a quick fire. Coffee slightly brown was looked upon with favor; for every good housewife in those days knew that green coffee changed its color in aging, and that of course aged coffee was best.
And so it came about that Java coffees were preferably shipped in slow-going Dutch sailing vessels, because it was desirable to have a long voyage under the hot tropical sun suitably to sweat the coffee on its way to market and to have it a handsome brown on arrival. The sweating frequently produced a musty flavor which, if not too pronounced, was highly prized by experts. When the ship left Padang or Batavia the hatches were battened down, not to be opened again until New York harbor was reached.
Many of the old-style Dutch sailing vessels were built somewhat after the pattern of the Goed Vrouw, which Irving tells us was a hundred feet long, a hundred feet wide, and a hundred feet high. Sometimes she sailed forward, sometimes backward, and sometimes sideways. After dark, the lights were put out, all sail was taken in, and all hands turned in for the night.
The last of the coffee-carrying sailing vessels to reach the United States was the bark Padang, which arrived in New York on Christmas day, 1914.
Handling Coffee at New York
The handling of the cargoes of coffee when they arrive at their destination is a source of wonder to the layman. There is probably no better place to study the handling of coffee than in New York City—the world's largest coffee center. Millions of bags of coffee pass into consumption every year through its docks, and scarcely a day goes by when there are not one or more ships discharging coffee upon the docks lining the Brooklyn shore, the center of the coffee-warehouse district for New York. In 1921, the New York Dock Company alone had 159 bonded warehouses with a storage capacity of some 65,000,000 cubic feet; and 34 piers, the longest measuring 1,193 feet and containing more than 175,000 square feet. These piers have a total deck space of sixty-one and a half acres. The wharfage distance is more than nine and a third miles. More than twenty steamship lines berth their vessels there regularly, and many of them are coffee ships. The warehouses have direct connections with all the principal railway trunk lines running into the New York district; and the whole property of the company stretches along the waterfront opposite lower Manhattan for about two and one-half miles.
Although coffee is admitted to the United States free of duty, it is subject to practically the same formalities as dutiable goods. Before the cargo can be "broken out," a government permit to "land and deliver" must be placed in the hands of the customs inspector on the dock. This done, the ship's samples, which consist of the samples sent by the exporter to the importer, are taken to the United States appraiser's office for inspection, and are then delivered to the importer's representative. Meanwhile the shipping documents covering the cargo, including bills of lading and consular invoices, have been sent to the post office for delivery to banks and bankers' agents, who check and deliver them to the customs officers for entry. The government requires that this entry shall be made within forty-eight hours of the vessel's arrival, else the cargo will be stored in a United States bonded warehouse under what is known as "general order" which makes the consignee liable for storage and cartage charges.
When a coffee ship arrives in New York, not much time is lost in discharging the cargo. As soon as the vessel is securely moored to the pier, and the government's permission to "land and deliver" is secured, the hatches are removed, the coffee is hauled out of the hold by block and tackle and swung off in slings to the pier, where dock laborers carry the bags to their proper places. If each cargo consisted of one consignment to a single importer, and contained only one variety of coffee, unloading would be a comparatively simple affair. In general practise, however, the cargoes consist of a large number of consignments and a variety of grades, necessitating a careful sorting as unloading progresses. Accordingly, even before the unloading begins, the dock is chalked off into squares, each square having a number, or symbol, representing a particular consignment. As the bags come up out of the hold, the foreman of the laborers, who has a key to the brand marks on the bags, indicates where each bag is to be placed. Coffee to be reshipped, either by lighter or rail, is heaped in piles by itself until loaded on to the lighters or freight cars.
The next step is to transfer the cargo to the warehouse, and to separate each consignment according to the various kinds of coffee making up the invoices. When the importer gives his orders to store, he sends also a list of the different kinds of coffees in his consignment, called "chops" by the trade, with directions how to divide the shipment. To do this, the floor of the warehouse is chalked off into squares, as was done on the dock; but now the numbers, or symbols, in each space indicate the chops in each invoice, or consignment.
The importer naturally is eager to sample the newly arrived coffee. Sampling is generally done by trained warehouse employees, who are equipped with coffee triers, sampling instruments resembling apple-corers, which they thrust into the bags. The instrument is hollow, and the coffee flows into the hand of the sampler, who places each sample in a paper bag which is marked to indicate the chop. The total sample of each chop usually consists of about ten pounds of coffee, which the importer compares with the exporter's sample.
When sampling for trade delivery, about two-thirds of the bags in a chop are tried. But when sampling for delivery on Coffee Exchange contract, every bag must be tested, and care taken that each chop is uniform in color, kind, and quality. Coffee for Exchange delivery must be stored in a warehouse licensed by the Exchange; and the warehouseman is responsible for the uniformity of grade of each chop.
When approximately ninety percent of the cargo has been unloaded and stored, the warehouse issues what has become known as the "last bag notice." In the majority of cases the coffee has been sold before arrival; and on receipt of the last bag notice, the importer can transfer ownership of the coffee and save interest.
In a cargo of 75,000 to 100,000 bags of coffee that have been hurriedly loaded in the producing country and unloaded at destination in equal haste, a small portion of the cargo is almost certain to be damaged. Generally the damage is slight. If a bag is torn or stained, the coffee is placed in a new bag. If the contents have become[Pg 322] mildewed, the damaged portion is taken to a warehouse for reconditioning; while the sound coffee is thoroughly aired to remove the odor and is then placed in a clean bag. The reconditioned lot is put into a separate package and forwarded to the buyer with a "reconditioning statement" that shows what has been done.
On the left are three piers of the Pouch Terminal at Clifton; on the right, four of the American Dock Terminal at Tompkinsville; and between these are thirteen piers of the new Municipal Terminal]
Bags that have become torn in transit, and parts of their contents spilled, are called "slacks." These are weighed as they arrive on the dock by a licensed public weigher; and a sufficient quantity of the coffee remaining on the floor of the ship's hold is put into the bag to make it of the proper weight. The expense of reconditioning and rebagging is generally borne by the marine insurance companies. When the entire cargo is unloaded, and the slacks and bad-order bags are weighed and marked, the warehouseman tallies up the records of his clerks, and renders a corrected chop list to the consignee.
Electric Tractors and Trailers
Another district along the water front of Brooklyn where coffee is discharged in large quantities is that between Thirty-third and Forty-fourth Streets, south Brooklyn, occupied by the Bush Terminal Stores. This plant is laid out with railroad spurs on every pier, so that its own[Pg 323] transfer cars, or the cars of the railroads running out of New York, can be run into the sheds of the docks where coffee is being discharged from the ships. The methods employed by the Bush Terminal are similar to those just described, except that all the coffee is handled by electrically-manipulated cars or trucks, in some instances the powerful little tractors hauling many "trailers" to various parts of the yards.
Handling Charges at New York
Before the World War, it cost approximately one-half cent a bag to handle green coffee from the vessel to warehouse and in storage in New York. The rate advanced nearly one hundred percent in the latter part of 1919, then dropped slightly, although it is still (1922) above the pre-war price. Other handling charges are shown in the following tabulation:
|Coffee Handling Charges at New York|
Cents per bag
Cents per bag
|Storage||3 to 4||5 to 8|
|Labor||3 to 4||5 to 8|
|Sampling for damage||1||1|
|Dumping and mixing||10||15|
|Dumping and airing||10||15|
|Shoveling and airing||10||15|
|Transferring coffee from floor to floor||4||8|
|Labor at vessel||$9 per M||$12.50 to $15 per M|
The warehousemen in 1919 charged four cents per bag for loading into railroad cars. This charge was discontinued in 1921. The cost of weighing increased from two and one-half cents per bag in 1914 to four and one-half cents in 1919, and then dropped to the present price of three to three and one-half cents. Other handling charges at the port of New York are:
|Other Handling Charges, 1922|
|Cents per bag
|Drawing samples, each 10 lbs||17 to 20|
|Grading for variation||4|
|Reducing or evening off slack||9|
|Transferring to new bag||10|
|Trucking to weigher in store||3|
|Collecting and preparing sweepings||25|
|Delivering sample below Canal Street||75|
|Each additional sample||10 to 15|
A plan intended to cut down handling costs in New York, and to expedite deliveries, was inaugurated by the National Coffee Roasters Association at the beginning of 1920. The Association formed a freight-forwarding bureau, and invited members to have their coffee shipments handled through the bureau. The charges for forwarding direct importations are two cents per bag. Cartage charges vary from six to eighteen cents per hundred pounds. Claims are handled without charge.
The Seven Stages of Transportation
The foregoing story has taken the reader through the seven most direct routes that lead from the plantation to the roaster: first, from the patio to the railroad or river; then to the city of export; into the warehouses there; then into the steamers; out of them, and upon the wharf at the port of destination; from the wharf into the warehouses; and, finally, from the warehouses to the roasting rooms. It will be understood that in some instances where the plantation is hidden away in the mountains, it is necessary to relay the coffee; and again, at this end, the coffee is very often transhipped. In such cases, more handlings are required.
Handling Coffee at New Orleans
Coffee ships are unloaded in New Orleans, the second coffee port in the United States, in about the same general manner as in New York, with the important exception that the block-and-tackle system for transferring the bags from the ship to the dock has been largely supplanted by the automatic traveling-belt conveyor system. Another notable feature is New Orleans' steel-roofed piers, whereon the coffee can be stored until ready for shipment to the interior. Because of the class of labor—mostly negro—employed in unloading ships, New Orleans has found it expedient to retain the old flag system to indicate the part of the pier where each mark of coffee is to be piled as taken from the vessel. These little flags vary in shape, color and printed pattern, each representing a particular lot of coffee, and they are firmly fixed at the part of the pier where those bags should be stacked. Trained checkers read the marks on the bags as the laborers carry them past, and tell the carrier where the bag should be placed. To the illiterate laborers the checker's cries of "blue check," "green ball," "red heart," "black hand," and the like, are more understandable than such indications as letters or numbers.
Handling Coffee at San Francisco
San Francisco ranks third in the list of United States coffee ports, having received its greatest development in the four years of the World War, when the flow of Central American coffees was largely diverted from Hamburg to the Californian port. In the course of these four years, the annual volume of coffee imports increased from some 380,000 bags to more than 1,000,000 bags in 1918. The bulk of these importations came from Central America, though some came from Hawaii, India, and Brazil and other South American countries. Because of its improved unloading and distributing facilities, San Francisco claims to be able to handle a cargo of coffee more rapidly than either New York or New Orleans.
Handling Central American coffees in San Francisco is distinctly different from the business in Brazil. In order to secure the Central American planter's crops, the importers find it necessary to finance his operations to a large extent. Consequently, the Central American trade is not a simple matter of buying and selling, but an intricate financial operation on the part of the San Francisco importers. Practically all the coffee coming in is either on consignment, or is already sold to established coffee-importing houses. Brokers do not deal direct with the exporters; and practically none of the roasters now import direct.
In recent years San Francisco has adopted the practise of buying a large part of her coffee on the "to arrive" basis; that is the purchase has been made before the coffee is shipped from the producing country, or while in transit. This practise applies, of course, only to well known marks and standard grades. Coffee that has not been sold before arrival in San Francisco is generally sampled on the docks during unloading, although this is sometimes postponed until the consignment is in the warehouse. It is then graded and priced, and is offered for sale by samples through brokers.
San Francisco is better equipped with modern unloading machinery and other apparatus than either New Orleans or New York, even more liberal use being made there than in New Orleans of the automatic-belt conveyors both for transferring the bags from the ships to the docks and for stacking them in high tiers on the pier. Another notable feature of the modern coffee docks is that the newer ones are of steel and concrete and, as in New Orleans, are covered to protect the coffee from wind and storm.
Europe's Great Coffee Markets
Europe has three great coffee-trading markets—Havre, Hamburg, and Antwerp. Rotterdam and Amsterdam are also important coffee centers, but rank far below the others named. In point of volume of stocks, Havre led the world before the war; while in respect to commercial transactions, it ranked second, with New York first. In pre-war days, the largest part of the world's visible supply of coffee was stored in the Havre bonded warehouses, being available for shipment to any part of Europe on short notice, or even to the United States in emergencies. Even during the World War, this French port remained a powerful factor in international coffee trading. Coffee trading in Havre, both exchange and "spot" transactions, follows about the same general lines as in New York and the other great coffee markets. Coffee "futures" are dealt in on the Havre Bourse.
Green coffee is sold in London by auction in Mincing Lane. On arrival, it is stored in bonded warehouses, and is released for domestic use only when customs duty at the rate of four and one-half pence per pound has been paid. The bulk of the coffee comes in parchment on consignment; and before sale, it must be hulled and sorted in the milling establishments, most of which are on the banks of the Thames.
The auctions are held four times a week, usually on Tuesday, Wednesday, Thursday, and Friday. The sales are advertised in the market papers—chief among which is the Public Ledger—and also by the auctioneers, who issue catalogs of their offerings. A few hours before the beginning of the sale, samples are laid out for inspection by prospective buyers, who may cup-test them if they desire. The actual selling is done by competitive cash bidding, the highest bidder becoming the owner. Two classes of brokers do the bidding, one for home trade and the other for exporters.
Home trade takes about a tenth of the coffee, the remainder being sold for export. If the coffee is bought for re-export, it can be transferred to the shipping port, still in bond, and shipped out of the country without paying duty. During the World War, auctions were held about twice a week; but after the signing of the armistice in November 1918, the London traders resumed the four times a week practise.
The building fronts on Hanover Square and extends through to Beaver Street. The exchange rooms are indicated by the arched windows on the second floor. The rest of the building is devoted to offices. The exchange was founded in 1881, and was the first national coffee trading organization in the world.
Coffee Exchanges and Trading Methods
Green-coffee buyers in the large importing centers of the United States and Europe recognize two distinct markets in their operations. One of these is called the "spot" market; because the importers, brokers, jobbers, and roasters trading there deal in actual coffee in warehouses in the consuming country. In New York the spot market is located in the district of lower Wall Street, which includes a block or two each side on Front and Water Streets. Here, coffee importers, coffee roasters, coffee dealers, and coffee brokers conduct their "street" sales.
The other market is designated as the "futures" market; and the trading is not concerned with actual coffee, but with the purchase or sale of contracts for future delivery of coffee that may still be on the trees in the producing country. Futures, or "options" as they are frequently called, are dealt in only on a coffee exchange. The principal exchanges are in New York, Havre, and Hamburg. New Orleans and San Francisco exchange dealers trade on their local boards of trade.
Coffee-exchange contracts are dealt in just like stocks and bonds. They are settled by the payment of the difference, or "margin"; and the option of delivering actual coffee is seldom exercised. Generally, the operations are either in the nature of ordinary speculation on margin or for the legitimate purpose of effecting "hedges" against holdings or short sales of actual coffees.
The New York Coffee and Sugar Exchange—the most important in the world, because of the volume of its business—deals in all coffees from North, South, and Central America, the West Indies and the East Indies (except those of the Robusta variety) and uses Type No. 7 as the basis for all Exchange quotations. All other types are judged in relation to it. In determining the number of a type, the coffee is graded by the number of imperfections contained in it.
These imperfections are black beans, broken beans, shells, immature beans ("quakers"), stones, and pods. For counting the imperfections, the black bean has been taken as the basis unit, and all imperfections, no matter what they may be, are calculated in terms of black beans, according[Pg 330] to a scale, which is practically as follows:
|3 shells equal||1||black||bean|
|5 "quakers" equal||1||"||"|
|5 broken beans equal||1||"||"|
|1 pod equals||1||"||"|
|1 medium size stone equals||1||"||"|
|2 small stones equal||1||"||"|
|1 large stone equals||2 to 3||"||"|
By this scale a coffee containing no imperfections would be classified as Type No. 1. The test is made on one-pound samples. If a sample shows six black beans, or equivalent imperfections, it is graded as No. 2; if thirteen black beans, as No. 3; if twenty-nine black beans, as No. 4; if sixty black beans, as No. 5; if one hundred and ten black beans, as No. 6, and if more than one hundred and ten black beans, as No. 7 or No. 8. These two are graded by comparison with recognized exchange types. Coffees grading lower than No. 8 are not admissible to this country.
The quotation relationship of other types with the basic Rio No. 7 is shown in the table below.
By this scale one can determine that when Rio No. 7 is quoted at 17.10, Rio No. 2 is 18.60, Santos No. 3, 19.10, and Bogota No. 5, 18.10. The quotations are on the pound and cents basis.
|SCALE OF QUOTATION RELATIONSHIP|
|Brazilian Coffee—Not Santos||Santos Coffee||Other Kinds—Not Brazilian|
|No. 1—180 points above||No. 1—260 points above||No. 1—300 points above|
|No. 2—150 points above||No. 2—230 points above||No. 2—250 points above|
|No. 3—120 points above||No. 3—200 points above||No. 3—200 points above|
|No. 4— 90 points above||No. 4—150 points above||No. 4—150 points above|
|No. 5— 60 points above||No. 5—100 points above||No. 5—100 points above|
|No. 6— 30 points above||No. 6— 50 points above||No. 6— 50 points above|
|No. 7—Basis||No. 7—Basis||No. 7—Basis|
|No. 8— 50 points below||No. 8— 50 points below||No. 8— 50 points below|
|A point is the hundredth part of a cent|
In the spot market, a trader may also buy or sell coffee "to arrive"; that is, a consignment that is aboard ship on the way to the market. Coffee is shipped to New York[Pg 331] either on a consignment basis and sold for a commission, or it may have been bought in the shipping port and be already the property of an importer. When shipped on consignment, a wholesaler usually buys on the in-store contract, which provides that the purchaser must take delivery at the warehouse, though he is generally given a month's storage privilege before removal of the coffee. The practise among New York importers at present is to buy coffee on either the basis of F.O.B. delivery steamer at loading port, or delivery C. & F. (cost and freight), or C.I.F. (cost, insurance, and freight), port of destination. Payment is made by letter of credit drawn on a New York or London bank, entitling the exporter to draw at ninety days' sight against the shipping documents, so that the shipment will be in the hands of the purchaser long before the draft is made. Frequently a jobber acts as his own importer of Brazil coffee, buying direct from the exporter without utilizing the agency of a broker or a regular importing firm.
Brazil coffee is bought with the stipulation that differences between samples and the coffee actually delivered may be adjusted either on "Brazil grading," "half difference," or "full difference"; and with the further provision that, if the delivery is a full type higher or lower than specified in the contract, the entire shipment may be rejected. Under the "Brazil grading" provision, the buyer must accept delivery if the coffee is better than the next lower type, even though not up to the type ordered; and if the coffee is of a higher type than contracted for, he need not pay premium for it. In buying on the "half difference" or "full difference" basis, the buyer is entitled to payment for half the difference or the full difference, respectively, for any undergrading, or must pay the seller accordingly if there is any overgrading. When a buyer specifies special features of description, in addition to type, some sellers protect themselves against claims for difference on this score by inserting in the contract a clause to the effect that the description is given in good faith, but is not guaranteed by the seller.
The one on the right is a record of transactions in the coffee pit. As soon as a trade is made, it is noted in the proper column on the lower part, the entry showing the time of the transaction, the number of "250-pound bag lots," and the price. The left-hand board gives Santos and Rio future quotations. For a detailed description of these and other exchange quotation boards, see page 457
How the New York Exchange Functions
When the New York Coffee Exchange was incorporated in 1881, its charter stated[Pg 332] its purposes to be "to provide, regulate and maintain a suitable building, room or rooms for the purchase and sales of coffees and other similar grocery articles in the city of New York, to adjust controversies between members, to inculcate and establish just and equitable principles in the trade, to establish and maintain uniformity in its rules, regulations and usages, to adopt standards of classification, to acquire, preserve and disseminate useful and valuable business information, and generally to promote the above mentioned trade in the city of New York, increase its amount, and augment the facilities with which it may be conducted."
In the promotion of trade at New York the Exchange has been highly successful. From time to time it has been criticized; and, more than once, coffee traders in the East and in the West have raised a question as to its value to non-speculating members. There are those who believe it serves a useful purpose, and others who call it a huge pool room. To say that, on the whole, it is not of benefit to the trade would be untrue. As one of its champions pointed out in 1914, when it shut down for a period of four months on account of the World War:
The ability to discount the future is a necessity, and demands the facilities that a unit of centralization like the Exchange affords. There is no difference between a purchase of coffee and one of a future month on options.
The experience gained here and abroad demonstrates that any check placed upon such dealings is detrimental, with far-reaching effects upon the whole body of the trade. Unquestionably the Exchange is a powerful factor as a regulator of extremes in the market.
The experience gained in Germany, where an embargo was placed upon transactions in futures, is illuminating. The disastrous effects were so plain that the authorities were forced to abandon their objections and permit a resumption of the business along the old lines.
But a good thing can be abused, and the opportunity to gamble in options availed of by so many is the increment that disturbs the legitimacy of the market and creates the opposition to the whole proposition. When the Exchange is ready to insist that every transaction in futures must be a legitimate one, and that every trader under its jurisdiction using the facilities of the Exchange is made to realize that any operations that are purely of a gambling nature will subject him to severe discipline, then the Coffee Exchange will begin to stem the tide of an ever-growing opposition by the general public.
The New York State legislative committee on speculations in securities and commodities had the following to say on the Coffee Exchange in its report to Governor Charles E. Hughes in 1909:
It [the Coffee Exchange] was established in order to supply a daily market where coffee could be bought and sold and to fix quotations therefor, in distinction from the former method of alternate glut and scarcity, with wide variations in price—in short, to create stability and certainty in trading in an important article of commerce. This it has accomplished; and it has made New York the most important primary coffee market in the United States. But there has been recently introduced a non-commercial factor known as "valorization," a governmental scheme of Brazil, by which the public treasury has assumed to purchase and hold a certain percentage of the coffee grown there, in order to prevent a decline of the price. This has created abnormal conditions in the coffee trade.
All transactions must be reported by the seller to the superintendent of the Exchange, with an exact statement of the time and terms of delivery. The record shows that the average annual sales in the past five years have been in excess of 16,000,000 bags of 130 pounds each.
Contracts may be transferred or offset by voluntary clearings by groups of members. There is no general clearing system. There is a commendable rule providing that, in case of a "corner," the officials may fix a settlement price for contracts to avoid disastrous failures.
The original initiation fee was $250. Seats on the Exchange once sold for as low as $110. In January, 1916, there was a sale at $3,000; in October, 1916, there was[Pg 333] a sale for $5,000; in April, 1921, three seats were sold for $5,500 each; but the record price of $8,600 was paid in 1919. Seats are now (1922) worth about $6,000.
The Exchange includes in its membership 323 brokers, importers, dealers, and roasters. Membership is passed upon by a committee on membership; but any one twenty-one years old, resident or non-resident, of good character and commercial standing, is eligible when proposed and seconded by Exchange members. The committee refers the application with its recommendation to the board of managers, which takes a ballot. The adverse vote of one-third of all votes cast rejects.
The Exchange elects annually a president, a vice-president, and a treasurer, who perform the usual duties of Exchange officers. The real governing body is the board of managers, consisting of the president, vice-president, treasurer, and twelve other members. This governing board, meeting monthly, appoints the necessary subordinate officers and employees, and fixes their compensation, and may "summon before them any officer or member for any purpose whatsoever." It appoints the secretary of the Exchange from among its own number, a superintendent of the Exchange, and the numerous committees which are in active charge of specified activities. It also licenses the necessary coffee graders, warehousemen, weighmasters, and samplers of the Exchange.
A brief discussion of the duties of the superintendent and the various committees will help to explain the methods of the Exchange market. The superintendent, under the direction of the board of managers, has charge of the details of its work and of that of the various committees. He keeps all the books and documents of the Exchange; collects and pays over to the treasurer all moneys due the Exchange not otherwise provided for; receives, deposits, and pays over all margins on coffee contracts; has active charge of the Exchange rooms and the bulletin board; and manages and appoints, with the consent of the board of managers, the assistants needed to perform the details of the work under his charge.
One of the functions of the Exchange is to grade and to classify coffee, in which it takes every possible precaution. The rules provide for eight standard grades; and only licensed graders are permitted to pass upon the product handled on the Exchange. There are twenty-five of these graders; one of whom is appointed as a supervisor of types, to provide fresh standards and to "maintain them as nearly as possible on an equality." When these standards are approved by the board and the Exchange, they remain in force for a year.
When coffee is received at a licensed warehouse, two official graders are chosen, one by the buyer and one by the seller. These graders receive four cents a bag if employed by a member; and eight cents a bag, if employed by a non-member.
If the graders disagree, their differences are referred to the board of coffee arbitrators, consisting of ten experts appointed by the board of managers. The superintendent selects by lot three of these arbitrators, who decide on the basis of the samples submitted, but will not make a decision lowering the grade below that of the lowest submitted nor higher than the highest. If the disputants do not change the grading to come within the arbitrators' findings, the samples are sent to the entire board of arbitrators, exclusive of those who may have been the original graders, and final decision is made by majority vote. As soon as the coffee is graded, a certificate is issued stating the grades, and bearing the signatures of the superintendent and graders. This certificate is conclusive evidence of the grade as far as the parties involved are concerned, for the subsequent twelve months. The buyer receives the original, and the seller a duplicate.
The rules provide that weights decided upon at the initial delivery are good during the life of the grading certificate for re-delivery, with definite allowances to the receiver, on re-delivery, of a quarter of a pound a bag a month, instead of having to re-weigh and re-sample for every separate delivery, as formerly.
As claims and trade controversies occasionally arise, the Exchange has provided means for their peaceful settlement. The board of managers elects annually an arbitration committee of five members, who swear to decide disputes fairly. This is the only committee on the Exchange that has power to adjudicate disputes between members and non-members; and its services must be sought by the disputants, who[Pg 334] must agree to abide by its decision. An adjudication committee of seven is annually chosen from the membership by the managers, to adjust all claims and controversies between members arising out of any merchandise transaction, "if notice in writing of such claim or controversy, and of the intention to demand an adjudication thereon, be served by either party thereto within ten days from the ascertainment thereof."
Within three days of the serving of this notice, each disputant selects an Exchange member as his adjudicator; and these two name the third, who must be a member of the adjudicating committee. Even this decision may be appealed to the board of managers, which, if it finds the grounds of appeal good (as decided by majority vote), appoints an appeal committee of five, of whom three must be members of the board. This last committee's decision is final. No new testimony bearing on the case may be introduced after the case has been closed by the adjudicators. Arbitration is voluntary with both parties; while adjudication is compulsory upon the application of either.
Another committee of trade importance is the spot quotation committee of five Exchange members. Each day at two o'clock, except on Saturday, when it meets at 11:45, this committee by a majority vote establishes the official daily market quotation of No. 7 coffee. There is likewise a committee on quotations of futures. This committee of five meets daily "immediately after the first call and at the close of the Exchange and reports to the superintendent the tone and price of the contract market, to be posted on the blackboard and transmitted to other Exchanges and commercial bodies."
A committee of five on trade and statistics has the important function of reporting to the board as to regulations for the "purchase, sale, transportation and custody of merchandise," and it attempts to establish uniformity in such matters between different markets. It has charge also of "all matters pertaining to the supply of newspapers, market reports, telegraphic and statistical information for the use of the Exchange. In the early 80's the Exchange abolished the old method of keeping coffee statistics, and the basis then adopted has since been accepted by all the large coffee markets of the world."
The minimum rates of commission on coffee "per contract of 250 bags, for members of the Exchange residing in the United States, are based upon a price" as follows, quoting from the Exchange bylaws adopted June 8, 1920:
|Coffee Exchange Commission Rates
(Per contract of 250 bags)
|Below 10 cents||$6.25||$1.50|
|10 cents up to 19.99 cents||7.50||1.75|
|20 cents and above||10.00||2.00|
For non-members residing within the United States, double the above rates of commission shall be charged.
For members and non-members residing outside of the United States a commission of $2.50 shall be charged in addition to the above rates.
Whenever before thirty minutes after the close of the exchange a member gives to another member for clearance purchases and sales of contracts corresponding in all respects except as to price, made during the day by himself or for his account when present on the floor of the Exchange, a charge for each contract shall be made equal to the corresponding floor brokerage rate for buying and selling, in addition to any floor brokerage incurred.
Members procuring business for other members may, by agreement, be entitled to one-half the commission rates for non-members prescribed in this Section, less the corresponding brokerage charge, whether paid or not.
When a transferable notice is given or received by a customer in fulfillment of a contract the brokerage in that case shall be not less than one-half of the corresponding buying or selling commission prescribed in Section 103.
Other committees are the finance committee (two) to audit bills and claims against the Exchange, to direct deposits and investments, and to audit the monthly and yearly accounts of the treasurer; a law committee (three), to deal with matters of legislation; a membership and floor committee (five); and a nominating committee (five). Organized as above outlined, and with a well established code of trade rules, the Exchange annually transacts a large number of sales in a business-like way.
There is considerable trading in future contracts; and a standard form has been adopted by the Exchange. No future contracts are valid unless they are made in the following form:
Brazilian Coffee—Not Santos
Office of _____________
New York__________ 19__
Sold for M_______________________
Thirty-two thousand five hundred pounds in about 250 bags coffee, growth of North, South[Pg 335] or Central America, West Indies or East Indies, excepting coffee known as "Robusta," and also any coffee of new or unknown growth, deliverable from licensed warehouse in the port of New York, between the first and last days of ________ next, inclusive. The delivery within such time to be at seller's option, upon a notice to buyer of either five, six or seven days, as may be prescribed by the trade rules. The coffee to be of any grade, from No. 8 to No. 1 inclusive (no coffee to grade below No. 8) provided the average grade of Brazilian coffees shall not be above No. 3. Nothing in this contract, however, shall be construed as prohibiting a delivery averaging above No. 3 at the No. 3 grade. At the rate of __________ cents per pound for No. 7, with additions or deductions for other grades according to the rates of the New York Coffee and Sugar Exchange, Inc., existing on the afternoon of the day previous to the date of the notice of delivery. Either party to have the right to call for margins as the variations of the market for like deliveries may warrant, which margins shall be kept good.
This contract is made in view of, and in all respect subject to the rules and conditions established by the New York Coffee and Sugar Exchange, Inc., and in full accordance with section 102 of the bylaws.
Across the face is the following:
For and in consideration of one dollar to __________________ in hand paid, receipt whereof is hereby acknowledged, ______________ accept this contract with all its obligations and conditions.
All deliveries on such future contracts must be made from licensed warehouses. There is a separate "to arrive contract"; but this likewise requires delivery at a licensed warehouse, unless the buyer and the seller have a mutual understanding to deliver the coffee from dock or ex-ship. Margins to protect the contract may be called for by either party. The largest deposit for margins was made in 1904, when $22,661,710 was deposited with the superintendent as required by the Exchange rules.
The basic grade in a future sale is No. 7; but variations are provided as follows: 30 points for Rio, Victoria, and Bahia of all grades between 7 and 1, and of 50 points between 7 and 8; 50 points is allowed on Santos and all other coffees except between grades 1 and 2 and 2 and 3 Santos, which are allowed 30 points. Thus the buyer and the seller when entering upon a transaction know exactly what the difference will be between the standard No. 7 and the coffee that can be delivered. The right to deliver any grade in a future transaction has done much to lessen the probability of corners in coffee; but this protection is further given by the stringent rule that the maximum fluctuations on the Exchange can be only two cents a pound on coffee in one day and one cent on sugar. If greater changes should threaten, the Exchange operations would automatically cease.
False or fictitious sales are prohibited, and all contracts must be reported to the superintendent. All contracts are binding and call for actual delivery.
The future contract, besides being used for the delivery of coffee during stated months in the future at a given price, is also used for hedging purposes. As in the grain and cotton markets, dealers protect themselves against price fluctuations by hedging in the future market. Importers, for instance, when purchasing coffee abroad, frequently sell an equal amount for future delivery on the Exchange. When the time for delivery arrives, it is simply a question of calculation of the market conditions whether it is more advantageous to repurchase the sales made as a hedge, or as a kind of insurance to protect themselves against loss, and free the coffee so engaged, or to make delivery of the coffee as it comes in.
The board of managers has power to close the Exchange or to suspend trading on such days or parts of days as would in their judgment be for the Exchange's best interest.
The Clearing Association is a recent outgrowth of the Exchange, and is composed exclusively of Exchange members. Every member has to bring his contracts up to market closing every night, either by making a deposit with the Association to cover his balances, or by withdrawing in case he should be over. Members deposit $15,000 at the time of joining as a guaranty fund; and if the surplus is not sufficient to take care of balances, the bylaws provide for the levying of assessments.
The daily quotations on the coffee exchanges of New York, Havre, and (before the war) of Hamburg, determined to a large extent the price of green coffee the world over. The prices prevailing on the New York Coffee and Sugar Exchange are studied by coffee traders in all countries, the fluctuations being reflected in foreign markets as the reports come from the United States. Quotations are cabled from one great market to another; and as each must heed those of the others to some extent, the coffee trade thus obtains a world[Pg 336] price, and the effect on supply and demand is universal rather than local, as would be the case if quotations were not exchanged.
In 1921 the Exchange adopted an amendment to the trade rules, and abolished the one day transferable notice for both coffee and sugar.
Foreign Coffee Quotations
Brazil coffee cable quotations are the market prices, in Rio or Santos, of ten kilograms of coffee, the price being stated in milreis, the monetary unit of Brazil money. The basic grade of coffee at Rio is the No. 7 of the New York Coffee Exchange; and at Santos, the international standard of good average ("g. a.") Santos. One kilogram (often written kilo, or abbreviated to K.) is equal to two and one-fifth pounds; and the ten-kilogram standard of quantity is, therefore, equivalent to twenty-two pounds, or just one-sixth of a standard Brazil bag.
The money value is not so simple, since Brazilian paper currency is unstable; and the milreis quotation means nothing unless it is considered in connection with the rate of exchange for the same day, i.e., the current gold value of the milreis. This gold value is always given with the daily quotations from Brazil, and is expressed in British pence. The par value of the milreis (1000 reis) is 54.6 cents (gold) of United States money; but its present actual value is only about 15 cents, and it has been as low as 111⁄4 cents. Our dollar sign is used to denote milreis, placing it after the whole number, and before the fractional part expressed in one-thousandths. Thus, 81⁄4 milreis would be written 8$250 RS.
Suppose, for example, a Rio quotation is given at 8$400, with exchange at 71⁄2 d. This means that 22 pounds of coffee have a gold value of 63 British pence (8.4 × 71⁄2 = 63.0), or 5⁄3, as the Englishman would write it, which is equal to $1.271⁄2, making the coffee worth 5.8 cents per pound. Of course the person familiar with Brazil quotations will not need to make this reduction to the pound-cent term in order to understand the figures. They will have a proper relative meaning to him in their original form; and it must not be overlooked that it is in this form only that they express correctly the value of the coffee in Brazil. It may make a great difference to the Brazilian planter or exporter whether an increased gold value of his coffee arises through a higher milreis bid or an appreciated exchange, simply on account of local currency considerations. That is to say, the purchasing power of a milreis in Brazil will not necessarily vary exactly as the rate of exchange on London.
London quotations are made in shillings and pence, on one hundred-weight (cwt) of coffee. This "cwt" is not 100 pounds but 112 pounds, one twentieth of the English ton (our long ton) of 2,240 pounds. And in all English coffee statistics the coffee quantities are expressed in this ton. A London quotation of 30/9 (30 shillings and 9 pence) for example, is equivalent to $7.44 for 112 pounds of coffee, or 6.64 cents per pound at the normal rate of exchange, $4.80 to $4.86 the pound sterling.
At Havre, the coffee price is given in francs, on a quantity of 50 kilograms. This is 110 pounds and almost as much, therefore, as the British cwt. In normal times the franc is equal to 19.3 cents. A French quotation of 371⁄2, for instance, means, therefore, $7.19 for 110 pounds of coffee, or 6.53 cents per pound.
The Hamburg quotation (formerly from Brazil per fifty kilos) is made on one pound German, equal to 1⁄2 kilogram, and is expressed in pfennigs. One pfennig is one-hundredth of a mark, and the mark once was equal to 23.8 cents. A German quotation of, say, 31, means, therefore, 7.38 cents (31 × .238 = 7.378) for 1.1 pounds, or 6.71 cents per pound.
Three Kinds of Brokers
In the coffee trade there are three kinds of brokers—floor, spot, and cost and freight.
Floor brokers are those who buy and sell options on the Coffee Exchange for a fixed consideration per lot of 250 bags. The coffee commission rate put into effect June 8, 1920, for round term (buying and selling) by the New York Coffee Exchange was as follows:
|Commission Rate on 250 Bags
(For Round Term—Buying and Selling)
|Up to 9.99c
|10c to 19.99c
|20c & up
|Floor brokerage—Buying or selling||1.50||1.75||2.00|
There is at present (1922) a stamp tax of two cents on each hundred dollars value, or fraction thereof, figured on each separate lot.
Spot brokers are those who deal in actual coffee, selling from jobber to jobber, or representing out-of-town houses; the seller paying a commission of about fifteen cents a bag in small lots, and half of one percent in large lots.
Cost and freight brokers represent Brazilian accounts, and generally receive a brokerage of one and one-quarter percent. On out-of-town business, they usually split the commission with the out-of-town or "local" brokers. The out-of-town brokers sometimes, however, deal direct with the importer. All brokers except floor brokers are sometimes called "street brokers." Most of the large New York, New Orleans, and San Francisco brokerage houses also do a commission business, handling one or more Brazilian or other coffee-producing-country accounts.
Important Rulings Affecting Coffee Trading
The United States have no coffee law as they have a tea law—prescribing "purity, quality and fitness for consumption"—but buyers and sellers of green coffees are required to observe certain well defined federal rules and regulations relating specifically to coffee. Up to the year 1906, when the Pure Food and Drugs Act became law, the green coffee trade was practically unhampered; and several irregularities developed, calling into existence federal laws that were designed to protect the consumer against trade abuses, and at the same time to raise the standards of coffee trading.
Under these regulations it is illegal to import into this country a coffee that grades below a No. 8 Exchange type, which generally contains a large proportion of sour or damaged beans, known in the trade as "black jack," or damaged coffee, as found in "skimmings." "Black jack" is a term applied to coffee that has turned black during the process of curing, or in the hold of a ship during transportation; or it may be due to a blighting disease.
Another ruling is intended to prevent the sale of artificially "sweated" coffee, which has been submitted to a steaming process to give the beans the extra-brown appearance of high grade East Indian and Mocha coffees which have been naturally "sweated" in the holds of sailing vessels during the long journey to American ports. Up to the time that the Pure Food and Drugs Act went into effect, artificial "sweating" was resorted to by some coffee firms; and out of that practise grew a suit that resulted in a federal court decision sustaining the Pure Food Act, and classifying the practise as adulteration and misbranding.
The Act also is intended to prevent the sale of coffees under trade names that do not properly belong to them. For example, only coffees grown on the island of Java can properly be labeled and sold as Javas; coffees from Sumatra, Timor, etc., must be sold under their respective names. Food Inspection Decision No. 82, which limited the use of the term Java to coffee grown on the island of Java, was sustained in a service and regulatory announcement issued in January, 1916. Likewise the name Mocha may be used only for coffees of Arabia. Before the pure-food law was enacted, it was frequently the custom to mix Bourbon Santos with Mocha and to sell the blend as Mocha. Also, Abyssinian coffees were generally known in the trade as Longberry Mocha, or just straight Mocha; and Sumatra growths were practically always sold as Javas. Traders used the names of Mocha and Java because of the high value placed upon these coffees by consumers, who, before Brazil dominated the market, had practically no other names for coffee.
One of the most celebrated coffee cases under the Pure Food Act was tried in Chicago, February, 1912. The question was, whether in view of the long-standing trade custom, it was still proper to call an Abyssinian coffee (Longberry Mocha) Mocha. The defendant was charged with misbranding, because he sold as Java and Mocha a coffee containing Abyssinian coffee. The court decided that the product should be called Abyssinian Mocha; but since then, general acceptance has obtained of the government's viewpoint as expressed in F.I.D. No. 91, which was that only coffee grown in the province of Yemen in Arabia could properly be known as Mocha coffee.
Another important ruling, concerning coffee buyers and sellers, prohibits the importation of green coffees coated with lead chromate, Prussian blue, and other substances, to give the beans a more stylish appearance than they have normally. Such "polished" coffees find great favor in the[Pg 338] European markets, but are now denied admittance here.
The Board of Food and Drug Inspection decided in 1910 against a trade custom that had prevailed until then of calling Minãs coffee Santos when shipped through Santos, instead of Rio.
For years a practise obtained of rebagging certain Central American growths in New York. In this way Bucaramangas frequently were transformed into Bogotas, Rios became Santos, Bahias and Victorias were sold as Rios, and the misbranding of peaberry was quite common. A celebrated case grew out of an attempt by a New York coffee importer and broker to continue one of these practises after the Pure Food Act made it a criminal offense. The defendants, who were found guilty of conspiracy, and who were fined three thousand dollars each, mixed, re-packed and sold under the name P.A.L. Bogota, a well known Colombian mark, eighty-four bags of washed Caracas coffee.
After an exchange of views with the United States Board of Food and Drug Inspection, the New York Coffee Exchange decided that, after June 1, 1912, it would abolish all grades of coffee under the Exchange type No. 8.
The practise in Holland of grading Santos coffees—by selecting beans most like Java beans, and polishing and coloring them to add verisimilitude—known as "manipulated Java," became such a nuisance in 1912 that United States consuls refused to certify invoices to the United States unless accompanied by a declaration that the produce was "pure Java, neither mixed with other kinds nor counterfeited."
The United States Bureau of Chemistry ruled in February, 1921, that Coffea robusta could not be sold as Java coffee, or under any form of labeling which tended either directly or indirectly to create the impression that it was Coffea arabica, so long and favorably known as Java coffee. This was in line with the Department of Agriculture's previous definition that coffee was the seed of the Coffea arabica or Coffea liberica, and that Java coffee was Coffea arabica from Java. Coffea robusta was barred from deliveries on the New York Coffee Exchange in 1912.
During the greater part of the year 1918, the United States government assumed virtually full control of coffee trading. It was a war-time measure, and was intended to prevent speculation in coffee contracts and freight rates, to cut down the number of vessels carrying coffee to this country so as to provide more ships for transporting food and soldiers to Europe, and to put the coffee merchants on rations during the stress of war. On February 4, 1918, importers and dealers were placed under license; and two days later, rules were issued through the Food Administration fixing the maximum price for coffee for the spot month in the "futures" markets at eight and a half cents, prohibiting dealers from taking more than normal pre-war profits, or holding supplies in excess of ninety days' requirements, and greatly limiting resales. On May 8, the United States Shipping Board fixed the "official" freight rate from Rio de Janeiro to New York at one dollar and fifty cents per bag, which, without control, had risen to as high as four dollars and more, as compared with the ordinary rate of thirty-five cents before the war. On January 12, 1919, two months after the armistice was signed, the rules were withdrawn, and the coffee trade was left to carry on its business under its own direction.
Some Well Known Green Coffee Marks
Practically every bag of good quality green coffee is imprinted with a brand which indicates by whom it was shipped. These imprints are known in the trade as "green coffee marks." Many of them, through long usage, have become celebrated in international trade. One of the most famous was HLOG. This stood for "Heaven's Light Our Guide," and was owned by John O'Donohue's Sons. For many years it was used on Mocha coffee, but it is now out of existence. Other well-known Mocha marks are M R (Maurice Ries) with the figure of a camel, a star, or deer's head between the letters; L F or L B (Livierato Frères); C F or C B (Caracanda Frères).
Bogota marks includes PAL (in triangle) Bogota (P.A. Lopez & Co.); Camelia; Pinzon & Co.; Salazar; AOL (in triangle) Bogota; and Carmencita Manizales Excelso (Steinwender, Stoffregen & Co.).
Among the best known Medellin marks are FAC & H (F.A. Correa & Sons): PEC & C (Pedro Estrado Co.); LMT & C (Louis M. Torro & Co.); A & C (A. Angel & Co.); E C S Medellin Excelso (Eppens, Smith Co.); Balzacbro Medellin Excelso (Balzac Bros.); La Rambla (Banco Lopez); and Don Carlos Medellin Excelso (Steinwender, Stoffregen & Co.).
Caracas marks show J P P & H (Juan Pablo Perez & Sons); HLB & C (H.L. Boulton & Co.); FST & C (Filipe S. Toledo & Co.); JLG (J.L. Garrondona); and many others. Kolster (Kolster & Co.) is a well known Puerto Cabello mark.
Maracaibos bear numerous marks, chief among which are: M & C (Menda & Co.); Cogollo (Cogollo & Co.); Fossi (Fossi & Co.); B M & C (Breur. Moller & Co.); B & C (Blohm & Co.); FST & C (Filipe S. Toledo & Co.); V D R & C (Van Dessel, Rodo & Co.); and J E C & C over R G E (J.E. Carret & Co.).
A prominent Mexican mark is P A N (Rafael del Castillo & Co.).
Brazil coffee is usually marked merely with the initials of the firm or bank financing the shipment. Some representative Brazilian marks are: Aronco (in rectangle) Brazil; J A & Co (in rectangle) Brazil Rosebud; J A & Co (in rectangle) Brazil Bourbona—all used by J. Aron & Company; S S C (in circle) Rio; S S C (in triangle) Santos; both used by Steinwender, Stoffregen & Co.; Sions M/M Bourbns (Sion & Co.); and Nossack V S S C (in swastika), used by Nossack & Co.
There are hundreds of other marks. In most countries they change so often that one rarely stands out above the rest.