Coffee Prices Near 13-Year High On Crop Troubles

By CarsonAdley

setembro 2, 2010

Take an extra second to savor that delicious brew of your favorite coffee blend. Because, if price is an indicator of value, that cup of coffee is now worth around 30 per cent more.

Coffee prices are soaring to rates near an international 13-year high after growth of crops in Colombia and Central America was slowed by poor weather. Experts are chalking it up to a crop failure, which is bad news for Colombian coffee bean farmers who are pulling in small, poor-quality crops for the third year in a row.

The farmers and international consumers are competing for the shortage of bean supplies, and with demand increasing in countries such as Brazil and India, the price per pound has hiked to about 45 per cent higher than last year’s. Colombia is one of the world’s largest suppliers of Arabica coffee beans.

Word of the crop failure has investors keeping keen eyes on Brazil’s upcoming harvest, too.

Prices in future contract bidding on December coffee reached a high of $1.88 per pound on Aug. 23, the highest rate since September 1997, on speculations of how the poor coffee returns from Colombia and Central America will affect the market. Later in the week, news that Brazil’s nearing harvest is on pace to be a record-setting crop sent the price diving to $1.70 before it returned to around $1.85 last Friday.

Brazil’s high crop yield is expected to increase the worldwide supply of coffee beans in several months, but it won’t be in time to rescue consumers from paying their share of the price hike.

Do-it-yourself coffee is going to cost around 10 per cent more this fall, due to price bumps from popular brands such as Dunkin’ Donuts, Folgers and Maxwell House. Demand is so high for coffee in North America, though, that a small bump in price at the checkout line won’t have customers foregoing their caffeine fix unless the price per pound climbs up to around $3.00, experts say.

Smaller chains and individual cafes report that they will take a watch-and-see approach before making customers shell out more for their cup of joe, a move that could take the opposite effect and have them walking out the door empty-handed. Most chains and individual cafes purchase bean supplies up to a year in advance and are reluctant to change prices due to temporary supply instability. The impact of the recession and the alternative brew-at-home method also has cafes worried about losing customers.
If the market doesn’t improve before next summer, though, cafes may not have a choice but to follow the market with a price increase.

Large chains Starbucks Coffee, McDonalds and Tim Hortons, however, have made statements reporting their decisions to absorb the rising coffee costs until at least the end of the year, when current coffee contracts end.

They hope to shield their customers from higher prices to avoid an inevitable hit on purchases after a $4.00 coffee becomes $4.50. It’s a loss that a response to temporary market fluctuations won’t be able to replace.