Food processor J.M. Smucker Co. (NYSE: SJM) announced this morning that it was lowering the price on its coffee brands by an average of 6% “in response to sustained declines in green coffee costs.” Smucker’s brands include Folgers, Millstone, Cafe Bustelo, and Dunkin’ Donuts under license from Dunkin’ Brands Group Inc. (NASDAQ: DNKN) in retail channels only.

The question now, of course, is whether Kraft Foods Inc. (NYSE: KFT), maker of Maxwell House and Gevalia brands among others, Starbucks Corp. (NASDAQ: SBUX), Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR), Peet’s Coffee & Tea Inc. (NASDAQ: PEET), and Coffee Holding Co. Inc. (NASDAQ: JVA) will follow suit. Kraft would seem like a good bet to lower prices to compete in the retail space, but the premium coffee roasters are more likely to leave prices where they are as long as they can in order to make a little extra margin.

Last week’s price for arabica beans was about $1.90/pound. A year ago the price was just over $3.00/pound. Robusta (cheaper) beans currently cost about $1.14/pound, about 10% below the five-year high of $1.26/pound set last June.

A continued decline in arabica prices may force the premium roasters to lower prices because the story will hit the headlines and consumers will start making some noise about being gouged by the coffee companies. But that day is a ways off yet. But imagine, both gasoline and coffee prices falling at the same time. What an idea!

Paul Ausick

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