Coffee could soon cost more at grocery stores and cafes. Here’s why – National

As if a cup of coffee isn’t expensive enough, a confluence of factors is driving up farmers’ costs to grow the beans and could start seeping into their local coffee before the end of the year.

After hovering near $ 1 per pound for years, coffee futures (the price high-volume buyers agree to pay for coffee in the months after delivery) doubled in late July, reaching levels not seen since. 2014. Although prices have dropped a bit, they remain high at around $ 1.90 per pound.

Coffee lovers who already pay $ 8 or more for a bag at the grocery store or as much as $ 5 for a cup may despair of even higher prices, but a rise in coffee prices on the international futures market does not always hit the mark. consumer.

Here are some factors that could determine whether Americans will pay more for their morning jolt in the near future.

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What happened?

A sustained drought followed by two frosts in July opened a hole in Brazil’s coffee production, sending wholesale prices of the popular Arabica bean immediately higher than $ 2 a pound. The frost will significantly affect the 2022-23 harvest, said Carlos Mera, who analyzes the coffee markets at Rabobank.

Brazil’s frosts followed COVID-related supply chain grunts, shipping container shortages, labor shortages and other production setbacks. Add in the rising costs of pretty much everything and you have a bitter cup brewing for coffee drinkers.

“This is unprecedented,” said Alexis Rubinstein, Coffee & Cocoa managing editor for commodities brokerage StoneX Group. “Never before has it been such a perfect storm. Usually it has just been a supply and demand scenario.

“We have never been dealing with a supply and demand problem in addition to a logistics problem, in addition to labor problems, in addition to a global pandemic.”


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Why might retail prices go up?

While it is difficult to determine the size of the crop loss in Brazil, Mera said estimates range from 2 million to 6 million bags of coffee less. That’s about 12 percent of the world’s largest producer of Arabica, the bean used for most of the coffee sold around the world. Lower supplies almost always mean higher prices.

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Grace Wood, an industry analyst at market research firm IBISWorld, said that if consumers don’t see coffee prices increasing by the end of this year, they will almost certainly do so in 2022, as it is expected to rise. per capita demand.

“That will only contribute to higher demand that will further disrupt operations and make it more difficult for operators who are already experiencing supply problems,” Wood said.

Mera said that people who buy coffee beans in the store will likely see a more noticeable increase in prices because about half the cost of that bag on the shelf comes solely from the bean itself. However, in large coffee shops, he added, the cost of the bean only accounts for about 5 percent of a hot cup of coffee, so roasters “may not need to transfer increases right away.”

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Is it sure that prices will go up?

It seems likely, although higher coffee prices in the international future market are no guarantee that prices at your favorite roaster will rise. The damaged crop in Brazil is still more than a year away from harvest, enough time for many factors to change course.

Rubinstein said that higher prices on the international market can often stimulate production (farmers will have more money to invest in their harvest) and if there is more coffee on the market, prices will fall. But that will also depend on whether the big roasters have enough hoarded beans to get through, even if prices remain high for a long time.

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Starbucks, the world’s largest coffee retailer, suggested that it will not need to raise its prices due to lower 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 has a 14-month supply, which he says , they will keep it through 2021 and most of fiscal 2022.


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What about my local roaster?

Even the smallest independent specialty roasters sign contracts to buy their beans well in advance, long enough so that when a shortage like Brazil strikes, it doesn’t paralyze them. They also come from countries around the world, so gaps in one place can often be filled by another.

Chris Vigilante, co-owner of Vigilante Coffee with stores in suburban Maryland in Washington, DC, said that 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 so affected by (Brazil), but we will feel the pressure,” Vigilante said.

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Vigilante said he pays between $ 3.50 and $ 5.50 per pound for most of his beans, which are of higher quality and produced by smaller farms. He has no plans to raise prices, but if other small stores raise theirs, he said it is likely because the cost of other staples has risen.

“I’ve seen other specialty coffee roasters talk about raising their prices, but I think that’s not because of the cost of the coffee, but maybe because of the cost of some of our other supplies, like cups and equipment,” Vigilante said.

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Marcelo Silva de Sousa contributed to this report from Brazil.

© 2021 The Canadian Press

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