Higher Coffee Prices Making Iowa Retailers Jumpy
DES MOINES, Iowa -- Bad weather, bad crops and bearish commodity traders have piled on coffee prices that already were the highest in decades, to the point where retailers say they have no choice but to pass the added costs on to consumers, the Des Moines Register reported.
Starbucks, along with the makers of Maxwell House and Folgers, among others, raised prices last fall. Casey's General Stores, which says its coffee expenses are up 40 percent from a year ago, boosted its retail coffee prices in February. Now Urbandale, Iowa-based Friedrichs Coffee plans to implement 10- to 30-cent increases on most of its coffee drinks by the end of this month.
Gary Meyer, owner of Friedrichs Coffee, described the international coffee market as a "perfect storm" of events, including bad equatorial weather and increased demand in developing countries, that has kept coffee bean buyers jittery for more than a year. "Last week, it closed one day at like $2.95 a pound," Meyer said. "Last June, it was trading at $1.30 per pound."
Dirk Gunderson, Midwest sales manager for coffee roaster Mother Parkers of Canada, told the newspaper that the industry's higher prices began with a bad crop in Columbia and have been complicated by speculators and by a growing middle class in certain regions of the worlds "where they're now using more of the coffee that they used to export."
An initial stream of steady increases eventually led most of the world to buy coffee on the spot market, Gunderson said. "Everybody then was advised to buy short, so anytime there was even a slight dip in the market, everybody would jump in and things would go right back up again."
Gunderson estimates that a $1-per-pound increase in the price of coffee beans adds roughly 10 to 12 cents per cup to retailers' costs. Most initially chose to eat the added expense, but it appears they can’t any longer.
"People are just starting to pass along those prices to the public," said Meyer. "People try to hang on because we've got that whole competition thing going on out there. You don't want to go out of business because you're not charging enough, but you don't want your business to drop because you're overcharging on coffee."
"At some point, you've got to give into reality," Meyer said. "The collective reasoning finally catches up to you, and you do what you need to do to be a part of tomorrow's retailers."
Coffee prices, after flirting with last week's $3 level, closed around $2.62 on Tuesday amid general Japan-related uncertainty in the commodities markets. Gunderson said South and Central American farmers are planting coffee trees by the thousands. "We may be out of this in five months," he said. Or it may take longer. But "at a certain point, this goes away."