Rise In Coffee Prices Finally Hits Store Shelves
The J.M. Smucker Company (SJM), which produces well-known supermarket coffee brands such as Folgers and Dunkin' Donuts, announced a 9% jump in prices on Tuesday on the heels of higher coffee costs.
Arabica prices for futures contracts due in July currently stand at $1.72 per pound, up about 1.75% on Friday. Coffee prices have slumped over 21% since its April 23 high of $2.19 per pound.
These increases are largely caused from a drought in Brazil, the world's largest coffee producer.
When the coffee commodity rallies, it takes time for consumers to notice a change in prices at the supermarket and even longer for consumers to feel the pinch at the local coffee shop. Coffee shops tend to have thicker margins and can weather increases in costs, unlike the grocery stores.
In 2011, coffee prices peaked close to $3 per pound, causing The J.M. Smucker company to announce an 11% increase in prices http://www.mainstreet.com/article/lifestyle/food-drink/get-ready-pay-mor....
"I don't think a rise in store coffee prices is necessary," says Michael Seery, president of Seery Futures, a commodity consulting firm in Chicago. "[Smucker] is raising prices as if we were at 2011 levels, but they know they can get away with it and there will be a few percentage points that go into their pockets."
Coffee manufacturers tend to lock in prices of coffee ahead of time to hedge against volatile commodity prices. Consumers can still get the short end of the stick, regardless of how much the manufactures are paying.
Coffee beans are grown on trees, which have also been plagued by diseases, adding fuel to a coffee shortage that's expected to last into next year. "Those same trees will be producing coffee next year and the trees are stressed, so higher prices are here to stay," Seery adds.
In addition to a jump in prices at the grocery store for coffee, coffee shops may be forced to increase prices in large part due to rising dairy prices. "For coffee, it's all about crop estimates and how much will be produced, but dairy products have also risen substantially," Seery says.
- Written by Scott Gamm for MainStreet. Gamm is author of MORE MONEY, PLEASE.