Will fungus send coffee prices higher?
At least some packagers are cutting retail prices, if not your local Starbucks. However, a coffee-killing fungus outbreak could revive climbing prices later this year.
Here's some more news to keep you awake at night: It looks like coffee prices might go through a mood swing of sorts as the year progresses.
A global shortage of coffee beans sent prices in the U.S. percolating up to around $3 a pound in 2011. But since that peak, coffee prices have yet to stop falling. According to Brian Murphy at the Small Cap Network, it's currently trading at around $1.40 a pound.
The price drop is being attributed partly to several recent record coffee crops in Brazil, which produces about a third of the world's coffee. Reuters reports that Arabica beans, the type used mostly in brewed blends, have fallen to their lowest levels in two-and-a-half years.
In fact, J.M. Smucker (SJM), which produces the Folgers and Dunkin' Donuts coffee brands, announced on Tuesday it was decreasing the price of most of its packaged coffee products sold in the U.S. by an average of 6%, "in response to sustained declines in green coffee costs."
Other coffee sellers are expected to follow suit -- although Kraft Foods (KRFT), which makes Maxwell House coffee, told Reuters it has "no news to share at this time" about any possible changes to its coffee prices.
But lower retail prices probably won't effect the price of your morning cup at Starbucks (SBUX), Caribou Coffee (CBOU) or other coffee shops and restaurants. Brian Murphy says that's because coffee companies are like gas stations. "Once you become accustomed to a higher price," he notes, "they never quite lower it back to prior low levels...even if the underlying commodity (like gas, coffee, or whatever) does fall back to prior lows."
In the meantime, The Wall Street Journal quotes coffee sector analysts as forecasting that oversupply is going to keep prices dropping for at least the first half of 2013. But a wild card is also at play -- a bean-destroying fungus that's reportedly spreading across another important coffee-growing region, Central America.
Honduras, Guatemala and Costa Rica are all expecting significant drops in coffee production due to the disease. And those reductions could be felt market-wide by October, when the next coffee season starts.
And let's not forget that coffee used to come in 1 pound bags and cans. Today the vast majority of coffee is not a pound, a change they made years ago to keep coffee prices on the shelf the same while they accommodated an increase in coffee bean prices. A can or bag of coffee now runs anywhere from 10 ounces to 13 ounces. We're talking 20% to 40% less coffee in the bag with no corresponding decrease in price then, no price drop when bean prices dropped, and no price drops coming in the future.
For a moment, let's forget coffee shop coffee and just look at coffee that you buy at a grocery store to prepare at home. It seems that the price of beans has dropped from $3 a pound in 2011 to its current price of $1.40 a pound. That's a decrease of $1.60 a pound-- more than a 50% drop in the price of coffee beans to the companies making those bags of coffee that appear on grocers' shelves. So right now, those coffee makers are seeing a healthy increase in profit for each pound of coffee they sell to us. And don't forget the "less coffee in the bag" observation above.
Later this year when prices go up on the beans they use, we can be sure that we will see a price increase as well. They'll be happy to tell us that the fungus has resulted in a bean shortage and an increase in prices which they must, regrettably, pass onto the customer.
We never hear of the hefty profits they made while bean prices were down and the savings were not passed onto us. In fact, now that they've had these increased profits you can be sure they'll never return to the 2011 profit margins because that will look like a loss to their shareholders.
The Good Life ~
With the huge price hikes in store bought coffee over the past couple years one would think that Juan Valdez is now cruising around Columbia in a Lamborghini roadster with a grin on his face, a $50 Macanudo in his hand and a Playboy bunny riding shotgun. Hopefully the news about some coffee price cuts at the supermarket are the real deal.
Peace to all ~
In my opinion cusumer drip coffee makers do not make a good cup of coffee. To me never hot enough. The secret is freshly ground coffee and really hot water that only a peculator (or a commercial unit) will produce. But a perculator will take longer. Also to avoid waste, make only what you need or will be drinking. Because to me reheated coffee is just no good.
Finally, around here there are places where you can buy any size cup for $1.00 at the local convience stores. The largest size is 20oz compared to Dunkin' Donuts at $2.39 for the same size. Even though Dunkin's may be better. For the $1.00 price the coffee is surprisingly pretty good.
Walmart executives warn February sales are 'total disaster'; also qouted as saying he has never seen a worse month in seven years!
if walmart is in terrible shape.............what i like about this story is that those who refraudulated Oh'bomination are those who shop at wal-mart or are now required to shop there!
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