Coffee Crisis

(See drawing p. 11.)

Coffee, Brazilian coffee, made U. S. businessmen hop and howl like Hottentots last week around Manhattan's big brass Coffee Ring. They hopped on each others toes. They hopped higher on camp stools. When they could neither hop high enough or howl loud enough to make a buyer or seller on the other side of the ring understand, they bent low and plunged for the round brass railing, elbowing each others stomachs, yelling "Seven-Jan-Santos!" or "Four-Dec-Rio!" Arms waved and fingers waggled. It was stark, raving business bedlam--the biggest, blackest, wildest day in years on the New York Coffee & Sugar Exchange.

Coffee sellers were panicky, coffee buyers bearishly swell-chested. Plummetlike the price of coffee plunged--down 200 points for two days. Each point is 1/100-c-. What the howlers called "Dec-Santos!" (coffee from Santos, Brazil, for December delivery) fell, for example, one day from 19.25-c- to 17.25-c-, recovered somewhat, hit bottom the next day at 16.65-c-. Such a plunge, such an unsettling of coffee futures may spell eventually the loss of millions to coffee hoarding speculators, overloaded and waiting for a rise. Brazil, world's greatest coffee producer, is also the nation of most colossal coffee hoarding. Last week Vice President Benjamin B. Peabody of the New York Exchange unhesitatingly attributed the crash in coffee futures to "disquieting rumors regarding the situation in Brazil."

The rumors have been growing steadily more disquieting for at least three years. Last week was the climactic scare point. When news of the Manhattan break flashed to Rio, and when coffee futures began to fall there in sympathy, officials of the local Coffee Exchange became so apprehensive that that night they did not cable their closing prices to Manhattan as usual, fearing that the truth from Rio might aggravate the coffee landslide in the north.

Coffee has been Brazil's bonanza for over a century. There are more than 100 Brazilian planters with individual incomes exceeding $50,000. Most of them spend three lavish months a year in Paris, three decorous months at their massive Baroque mansions in Rio de Janeiro, and the remaining half year supervising their estates. Most of these rich men hail from Sao Paulo, "The State With a Billion Coffee Trees," which produces over half the world's crop. Most of them believe firmly in the efficacy of a combination in restraint of trade to keep prices high. For over two decades they have been perfecting a combination--really a gigantic, cooperative Coffee Trust--which the world has found hard to beat. By systematic hoarding of the Sao Paulo crop in good years and judicious release of these hoardings in bad they have made each and every U. S. coffee-drinker spend about 50-c- more per year for his coffee than he otherwise would. The U. S. coffee-drinker spends about $2.20 for raw coffee imported, pays a goodly extra sum to have it roasted, ground, tinned.

Inevitably Sao Paulo's bonanza prosperity caused other Brazilian states to go in heavily for coffee planting, spurred by the lure of high prices created by Sao Paulo's artificial restraint of trade. As these new plantations have come into production it has proved steadily harder to keep the price of coffee up. Pressure by the potent planters on the Brazilian Government forced the adoption of most dubious expedients by the state. These have included the buying and storing in State warehouses of Brazil's coffee surplus for a number of years, until today the Government of President Washington Luis is saddled with a stupendous hoard of coffee supposed to exceed 13 million bags --as much as an average year's crop.

Already the doubtful nature of this hoarded asset has caused a decline in the Brazilian currency--the milreis. Sooner or later the Government must unload. Recent crops have been bumper. Most observers believe that the Government cannot hold out, faces an eventual catastrophic coffee crash. Shrewdest coffeemen do not know when the crash will come, but last week's howling and hopping seemed of ominous significance.