Coffee Prices Are Skyrocketing
Your morning cup of joe could get even more expensive.
The drought that devastated the U.S. soybean and corn crop didn't extend to the southern neighbors; in fact, it's the opposite that is hurting the coffee crop.
Colombia, the world's second-largest grower of the coffee bean, is expected to experience a smaller-than-expected harvest from this year's heavy rains.
Colombia has had small harvests for the past three years. This year, the crop was delayed from heavy rainfall early in the season, a factor that also harmed the quality of the beans, so analysts expect an output of roughly 9 million bags, down from the original estimate of 9.5 million.
And though some have said that Brazil, the top producer of coffee crop, will have a robust harvest, an industry group told Bloomberg that its exports could be down roughly 11 percent from last year as well.
December coffee futures rose to $1.7365 per pound, a jump of 6.5%, on this news.
Of course, futures had hit a high of $1.90 earlier this year, and last year it was even worse at $3 per pound.
But the harvest expectations are still just estimates. Should the yield prove worse than expected, we could see even higher prices.
Now, if you're a frequent consumer of coffee franchises like Starbucks (NASDAQ: SBUX) or Dunkin' Donuts (NASDAQ: DNKN), you could avoid this price hike. At least that's what the franchises will tell you.
Both companies and others like them have long-term contracts that allows them to remain distanced from these short-term price movements. But this hasn't stopped them from raising prices in the past.
In March, Starbucks raised packaged coffee prices 12 percent. In July, it raised them an additional 17 percent.
Last year during the price rise, Starbucks raised prices on some of its fall coffee drinks.
And exactly two years ago, when coffee prices jumped 44 percent between the summer and the start of September, coffee from Dunkin' Donuts, Folgers, and Millstone rose 10%, while Maxwell House Coffee from Kraft Foods (NASDAQ: KFT) went up 9%.
As you can see from the chart, it's headed right back up to where it was in March and July, when packaged coffee prices rose.
*Chart courtesy of NASDAQ
And if these companies say they won't increase in-store beverage prices, they've done that in the past too. In 2004, Starbucks individual beverage prices rose roughly 11 cents each. Two years later they were up 5 cents, and the year after that the company added another 9 cents. And at the start of this year, prices increased as much as ten cents more in some regions.
Now that South American nations are preparing for a poor harvest, it might be time to buy some coffee canisters in bulk and save your Starbucks gift cards for a rainy day.+6
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