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Comment by mdasen | Hacker News Reader

It seems like there was lower coffee production so they hiked prices due to the more limited supply. It also seems like they hiked prices too high with suppliers saying that they've only sold 30% of their production when they'd normally have sold 100% by now.

It does kinda show how markets don't just magically hit an equilibrium price. The prices went up due to limited supply, but then the sellers couldn't sell at those higher prices. Negotiations over price aren't going fast and buyers are only buying what they can immediately use/sell.

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> It also seems like they hiked prices too high

How is that even possible?

> It does kinda show how markets don't just magically hit an equilibrium price.

Generally, markets do "magically" hit that.

Can you explain why, at the moment demand dried up at the higher price, the suppliers didn't immediately drop the price to meet demand? That's generally how these things work.

Unless there's some kind of cartel operation at play here. In which that's to blame, not the market.

Can you provide any links with greater detail?

Whenever someone says the market doesn't work it's just because it's not doing what they think it should, as if there's some pre-ordained magical prices.

A market that allows gamblers to cause resources to rot rather than lose money on their own bad bets is working exactly as a market should?

Seems to me the bigger magical leap here is in the observer who considers this to be either desirable or necessary.

If the people that wanted to buy bought, and the people that wanted to sell sold, and there was no fraud, yes.

This is why no one should take capitalist true believers seriously.

It’s not an efficient (let alone moral) distribution system if one of its outcomes is spiraling prices that are irreflective of genuine market demand.

The whole problem highlighted here is that the people who want to sell cannot sell because the buyers don’t want to eat their consequences and man up to the loss on their gambling.

I was wondering how it’s possible too. The article mentions this exchange:

https://www.ice.com/products/15/Coffee-C-Futures

My take:

Futures traders decided the price would go up 70%, and were very wrong. This led to the standard “C” contract (set by the ICE exchange) price being too high, tanking demand. If you want to participate in the futures market, you need to have a license you get from the exchange.

I’m sure some producers will try to bypass the exchange market that manages all that, but, ultimately, someone will have to lose a bunch of money. It’ll either be the traders (futures contracts end up being worthless) or the producers (coffee ends up rotting or being refused by the silo).

The article suggests it’s the latter, which makes me wonder how powerful the exchange is, and what happens if you just start freighting bags of coffee around.

So why is an exchange setting a price at all?

That's not how exchanges generally operate. They generally simply match supply and demand.

An exchange setting prices is the literal opposite of a free marketplace. Is this more of a cartel, like OPEC?

I’m not an expert on agricultural commodity exchanges, but at least some (like the Chicago board of trade) look like a cartel from the outside. The cartel controls distribution, and squeezes the producers and the consumers.

If that’s happening here, that’d explain how we can be in a situation where the (1) retailers want to buy coffee, but can’t afford the newly hiked price, (2) the producers are sitting on unsold inventory that they can’t discount, and, simultaneously (3) there’s a glut of distribution capacity and things like silos are sitting empty and going bankrupt.

I'm curious to know from someone who understands better- isn't this the kind of volatility that futures markets are intended to prevent? If actual product movement has changed significantly then is it just that this moment is especially volatile, or are futures as a mechanism not particularly meant to deal with this?

That was always touted as a reason, yes. I am sure it is partly true, within certain bounds.

Futures aren’t meant to do anything, are they? Like so much of the market, they are just another partial-information lottery which isn’t explicitly forbidden by weak regulators.

(But I’m not someone who knows better)

futures markets (among other things) allow producers to temporally match assets and liabilities.

Futures market started as a way of (and in America were strictly limited to) prpducers and wholesale buyers to hedge/fix their costs.

Then American regulators started handing exceptions to allowable market participants out like candy and suddenly the markets are majoritarily financial middlemen who do not want to take delivery.

Futures markets make lots of sense and are very useful. How they are currently constituted does not.

> It does kinda show how markets don't just magically hit an equilibrium price.

There's lot of research on situations where market prices fail to work, but not much (as far as I'm aware) of when they largely work, but there are times when the market seizes up (and how to avoid such situations). or do the risk of such situations are so great that a product should not a be allowed to have a truly "free" market. e.g. petroleum.

it's difficult to impossible to believe that there is any failure currently in the international coffee market. (i'm replying as much to GP as to you, not disagreeing with you)

>markets don't just magically hit an equilibrium price

markets do magically, and quickly, hit a "market clearing price" where all the bids and asks that match are executed. the market can also slow when there are plenty of bids and asks but they are too far apart.

an "equilibrium price" seems to imply some sort of stability, but when the future is uncertain, prices will be uncertain, without implying a market failure. there can be "information failures" that steer prices wrong, but prices can be uncertain just the same even given all current information.

Sellers will start holding more inventory. and wait for buyers to run through theirs.

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