So 1994 was good, we made money and that was the goal, I guess. but something was missing. I started buying futures and options to cover us, in an ever changing market. it was no longer just speculator's, dentists and doctor's, it was the real deal it was guys and girls in 'fidelity and Morgan Stanley that found commodities can make you a lot of money if you were willing to speculate. Think about it as someone that doesn't give a crap about your business and really doesn't know anything about it but just wants to make money on the crop estimate to the weather. So we are in a business that buys the physical product but have no control of the pricing. That is a settling feeling right? NOOOOO.
But that is when it changed, and I went to the owner and said we have to be in the game if we fixed coffee at $1.35 and the market goes to $1.15 we are in trouble. It will directly effect our gross margin. So I developed a system to not capture all the market swings but to take advantage of the market swings and capture some of the movement through paper transactions.
It was hard to explain to a guy who bought coffee at $1.20per lb and priced it at 3.20??? It became a joust and an education that if we bought physical coffee at $1.15 and the market goes to $1.35, we have position at $1.15 and we capture the paper profits at $1.35 and effectively negating the increase by realizing a paper profit of .20c per lb and selling the coffee at hopefully a little higher price because the market went up. it was ground breaking stuff, and I had it all down to a real system we couldn't lose but when you are dealing with fixed costs and gross margins it is a tough sell.