As if a cup of coffee weren’t expensive enough, a confluence of factors is pushing up farmers’ costs to grow the beans, and the higher prices might start to trickle down to your local coffee shop and grocery store before the end of the day. ‘year.
After hovering for years around $ 1 a pound, coffee futures – the price big buyers are willing to pay for coffee when delivered in the coming months – doubled in late July, peaking never seen since 2014. Although prices have fallen a bit since. , they remain high at around $ 1.90 a pound.
Coffee lovers who are already paying $ 8 or more for a bag at the supermarket or as much as $ 5 for a cup may despair of even higher prices, but a hike is not necessarily guaranteed as a surge in coffee prices over. the international futures market does not. always affects the consumer.
Here’s a look at some of the factors that could determine whether Americans will pay more for their morning shake in the near future.
A prolonged drought followed by two frosts in July knocked out coffee production in Brazil, immediately pushing wholesale prices of the popular Arabica grain to over $ 2 a pound. The frost will significantly affect the 2022-23 harvest, said Carlos Mera, who analyzes coffee markets at Rabobank.
The frosts in Brazil followed supply chain grunts over coronaviruses, a shortage of shipping containers, labor shortages and other production issues. Add to that the rising costs for pretty much everything and you have a bitter cup for coffee drinkers.
âThis is unprecedented,â said Alexis Rubinstein, editor-in-chief of Coffee & Cocoa for commodity brokerage StoneX Group. âIt’s never been this perfect storm before. This is usually a supply and demand scenario.
“We have never been faced with a supply and demand problem in addition to a logistics problem, in addition to manpower problems, in addition to a global pandemic.”
Why might retail prices go up?
Although it is difficult to determine the extent of crop losses in Brazil, Mera said estimates vary between 2 million and 6 million fewer bags of coffee. This represents around 12% of the production of the world’s largest producer of Arabica, the bean used for most coffees sold around the world. Lower supplies almost always mean higher prices.
Grace Wood, industry analyst for market research firm IBISWorld, said if consumers don’t see coffee prices rising by the end of this year, they almost certainly will in 2022, because per capita demand is expected to increase.
“It will just contribute to increased demand which will further disrupt operations and make it more difficult for operators who are already experiencing supply problems,” said Wood.
Mera said people who buy coffee beans at the grocery store are likely to see a more noticeable price increase, as about half of the cost of that bag on the shelf comes from just the bean itself. However, in larger cafes, he added, the cost of the bean is only about 5% of your cup of hot coffee, so roasters “may not need to postpone increases. right now”.
Is it certain that retail prices will go up?
It seems likely, although higher coffee prices in the international futures market do not guarantee that your favorite roaster’s prices will rise. The damaged crop in Brazil is still over a year away from harvest, leaving plenty of time for many factors to turn the tide.
Rubinstein said higher prices in the international market can often boost production – farmers will have more money to invest in their harvest – and if there is more coffee on the market, prices will fall. But it will also depend on the ability of large roasters to store enough beans to get them through, even if prices remain high.
Starbucks, the world’s largest coffee retailer, has suggested it would not need to raise prices due to declining production in Brazil. In a call with investors at the height of the Arabica price spike, Seattle-based coffee chain president and CEO Kevin Johnson said his company had 14 months to spare. supply, which he says will reach until 2021 and most of fiscal 2022.
What about my local roaster?
Even the smallest independent specialty roasters sign contracts to purchase their beans well in advance, enough so that when shortages like Brazil’s do occur, it doesn’t cripple them. They also source from countries around the world, so the gaps in one place can often be filled in another.
Chris Vigilante, co-owner of Vigilante Coffee, which has stores in suburban Maryland in Washington, said most specialty roasters don’t buy beans in the same international commodity market as big players like Nestle and Keurig Dr. Pepper. “So we are not as affected by [the situation in Brazil], but we will feel the pressure, âsaid Vigilante.
Vigilante said he pays between $ 3.50 and $ 5.50 a pound for most of his beans, which are better quality and produced by smaller farms. He has no plans to raise prices, but if other small stores increase theirs, he said it was likely because the cost of other essentials has gone up.
âI’ve seen other specialty coffee roasters talk about raising their prices, but I think it’s no longer because of the cost of the coffee but maybe because [of] the cost of some of our other supplies, like cups and equipment, âsaid Vigilante.