J.M. Smucker Co.’s (NYSE: SJM) recently decided to raise the prices of Folgers and Dunkin’ Donuts roast and ground products by 9%. The move is a shock, at least in terms of most consumer costs, which have moved up very little. However, the coffee crop has been weak this year, particularly in the critical market of Brazil. The nation’s coffee growers have been plagued by drought.
After rising to extraordinarily high levels in 2011, coffee futures settled back to more traditional levels in 2012 and 2013. They began to march higher in early 2014, and at one point were 80% higher compared to the start of the year.
Several large companies have been clever enough to hedge coffee prices the way that airlines do with jet fuel and oil. Starbucks Corp. (NASDAQ: SBUX) has resorted to this tactic, and the company claims this will keep it from the need to raise the prices of coffee drinks it sells in its stores, and probably its ground coffee as well.
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Coffee prices do have a significant effect on many Americans, based on a review of statistics. The National Coffee Association USA (NCA) wrote in its most recent report on the national market:
83% of the U.S. adult population now drinks coffee. At the same time, daily consumption remained strong and steady at 63%, while those who drink coffee at least once per week was up slightly to 75%.
While coffee may not be a huge part of household budgets, it could be the part that is rising the most quickly. Based on the NCA data, consumption is rising and not falling. It may be the price will not dissuade consumption at all, which would make the coffee market unusual by most standards.
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