Coffee faces a 40% price jump
Some prized growing regions of Brazil could be hit with cold weather from the South Pole.
The industry has seen Brazilian frost wreak havoc on prices before. In 1994, a frost damaged coffee crops and prices rose 39%. If the same thing happens this year, coffee could hit a record $4.20 a pound, according to Bloomberg. And if coffee is that high at the wholesale level, just imagine what it will cost on store shelves.
As if that weren't bad enough, there's already a shortage this year of Arabica beans, causing prices to increase 24%. "If Brazil has a frost, not only will we see uncharted prices but the situation might become unbearable," industry analyst Rodrigo Costa told Bloomberg.
Kraft Foods (KFT) hiked the price of Maxwell House and Yuban by 22% last month. JM Smucker (SJM) upped prices for Folgers by 10% in February.
For now, the industry is watching the weather in Brazil intently, particularly the Center South region that produces the Arabica beans favored by Starbucks (SBUX) and other brewers. Cold weather from the South Pole is due in that region next month, Bloomberg reports, and the temperature is expected to fall to 41 degrees. Coffee trees are in danger below 34 degrees.
Starbucks chief executive Howard Schultz is confident his company will have no coffee supply problem. Coffee suppliers say everything is fine, he told CNBC. The problem is that hedge funds and other speculators are pushing prices sky high.
"So we're living at a time right now where financial speculation index funds, hedge funds have created a rush of very, very high prices," Schultz said. "And not only coffee, corn, sugar, cotton and obviously oil, and unfortunately it has to hit the consumer."
Schultz added that he doesn't see much elasticity on coffee pricing. With the economic downturn, he said, the industry must be very conscious about prices.
Starbucks reported a 20% increase in quarterly profit Wednesday to $261.6 million, or 34 cents a share, meeting analyst expectations. Revenue rose 10% to $2.8 billion, which exceeded analyst expectations.
No problem. I drink at least a pot a day, but it is already ridiculously too high. They can keep it until the price goes down. I drink too much of it anyway and this would be a good time to quit. It's just like oil prices. It is all controlled and they set it at whatever they want. Case in point, during the oil spill last year they cut off oil in the gulf, but prices were the cheapest they had been in years. Why? To suck up to the public and counter the bad publicity. Now that he oil is flowing again, it's time to screw the public and jack the price up. Remember back in the fall, before the prices started to skyrocket, they predicted these high prices. How? Because they already knew what they were going to do. Same with Coffee. The prices are set at what the market will bear. We Americans are so spoiled and stupid that we will "bear" anything. It's out own fault. Time to step up and say, 'NO!"
What's with the sudden jump to talking about toilet paper? Weird.
Anyway, there is something you can do about it -- don't buy it. Lack of demand will bring the price down. I feel for restaurant owners though. They have to offer coffee, especially with breakfast.
And I saw a comment on can you grow a bean plant in the states....well yes but you need to research it first and follow close details to what they tell you. Enjoy
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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