Lower Bean Prices Create Windfall for Coffee Industry and Consumers

A bit of good news for the caffeine nation – those of us who can't get the day started without a decent morning cup of coffee.

There's been an overproduction of arabica – the delicate beans that tend to end up in espressos, pricey cafe drinks and so-called gourmet coffee. (The other well-known commercial bean, the more garden-variety robusta, usually has a higher caffeine content and is mostly used for instant coffee.)

In New York late last week, according to The Associated Press, arabica coffee futures for December delivery were down 1.1 percent to $1.091 a pound – their lowest price since March of 2009.

Analysts say bumper crops in Brazil, the world's largest coffee producer, have been steadily pushing global coffee prices lower for the past several years – which in turn has pressured arabica prices down to their current lows.

Sterling Smith, a commodities specialist with Citigroup, tells AP that Brazil should have another strong coffee harvest next year – which could help bring prices closer to the $1 a pound level.

“Brazil’s going to have another good crop, and they have quite a bit of carryover from last year,” Rodrigo Costa, a trading director at Caturra Coffee Corp. in Elmsford, N.Y., told The Los Angeles Times. “There are also promising harvests in Indonesia and Colombia. The trend is lower for prices.”

That trend is helping the bottom line at the big coffee chains. On Wednesday, Starbucks SBUX announced its fourth-quarter earnings, with total net revenues increasing 13 percent to $3.8 billion and earnings per share rising 37% to a record 63 cents per share. Operating income and operating margin figures both grew during 4Q – with the company saying that expansion was “primarily due to lower coffee costs and sales leverage.”

But company CFO and Group President Troy Alstead has warned analysts that Starbucks would not benefit as much as some investors believe from "another year of tailwinds on coffee costs", since the group "now has the vast majority of our coffee needs locked for fiscal 2014" – and plans to pass on some of the reductions to its customers.

Supermarket shoppers, meanwhile, are also benefiting from lower coffee bean costs. This past February,J.M. Smucker Co. SJM announced it was cutting list prices on most of its packaged coffee products sold in the U.S., “in response to sustained declines in green coffee costs.” And in May, Kraft KRFT began a six percent price cut on bags of Gevalia coffee sold in supermarkets.