Smucker sells packaged coffee under the Folgers and Dunkin’ Donuts brand in the United States. The company has licensed the Dunkin’ Donuts brand from Dunkin’ Brands Inc. (NASDAQ: DNKN), and the price hike does not apply to Dunkin’ products sold in Dunkin’ stores. Smucker’s prices for its K-Cup packs for the Keurig Green Mountain Inc. (NASDAQ: GMCR) systems are not affected.
The retail price of coffee is rising now because the beans that are going into the roasters today were purchased at higher prices in March and April. In its announcement of the price hike, Smucker said that the increased comes “in response to sustained increases in green coffee costs.”
Prices for arabica beans have been falling since mid-April because rain has fallen on drought-stricken Brazil, and the damage to the coffee crop is now expected to be less than originally feared. One estimate puts Brazilian output at 50.5 million 132-pound bags this year, a million bags higher than estimated just a month ago.
The commodity price increases of the past two months or so are finally trickling down to retail customers. Futures prices are still high considering that in late February prices hovered around $1.20 a pound, and that means that the higher prices will be with us for a few more months at least.
If Smucker and other coffee sellers like Kraft Foods Inc. (NASDAQ: KRFT) and Starbucks Corp. (NASDAQ: SBUX) are true to form, price increases will not entirely disappear if the commodity price drops back to pre-spike levels. The coffee sellers will keep the change, so to speak.
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