A leading US coffee roaster has increased the retail price of its packaged coffee, in the latest sign that the jump in some agricultural commodities is starting to hit the consumer wallet.
JM Smucker, the maker of the top US packaged coffee brand Folgers, said it was raising the prices of its coffee for the first time in three years. The group, which is also behind the Dunkin’ Donuts brand, said the move was “in response to sustained increases in green coffee costs” and that prices had been raised by an average of 9 per cent.
Coffee prices have surged on the back of the unprecedented drought in Brazil this year. Although the ICE September benchmark, trading at about $1.726 a pound, has retreated from the recent peak of $2.19, it is up more than 50 per cent from the start of the year.
Smucker’s announcement follows comments by Nestlé in April, which forecast a single-digit rise in input costs due to higher coffee prices, although it was not clear whether the Swiss consumer goods group would pass that on to the consumer.
Smaller roasters could follow Smucker’s example in raising prices, although at its latest quarterly results presentation Starbucks said it had locked in its coffee costs for 2014 as well as 40 per cent of its needs for the 2015 fiscal year, and was insulated from the impact of this year’s price surge.
Roasters who had not secured forward supplies before the price surge may have a brief reprieve as financial investors including hedge funds have been liquidating their bullish “long” bets on recent rains in Brazil.
Although many physical traders believe the damage for the current crop is severe, with the effect of the drought extending to the quality of next year’s harvest, many investors have been cutting their exposure, with net long positions the lowest since November 2012, according to Rabobank.
Nevertheless, the risks of a poor Brazilian crop remain. “There is a lot of risk being bearish about Brazil at the moment,” said one leading coffee trader.
The El Niño forecast for this year could bring volatility to coffee markets, as it will reduce rainfall in Vietnam and Indonesia, two key producers of robusta, the cheaper, lower quality bean traded on Liffe in London.
The weather phenomenon is expected to become “established by August”, the Australian Bureau of Meteorology said today. Damage to the robusta crop could affect the fragile arabica markets.
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