The Latest on Coffee Prices

For coffee lovers who were feeling the increase in coffee prices, there’s good news on the financial markets. The falling prices of green coffee greens on the futures market — a trend that started about six months ago — are making their way to the supermarket shelves. In the past two weeks, the food giants behind supermarket coffee brands that include Maxwell House, Folgers, Millstone and Dunkin Donuts have dropped their coffee prices, making your favorite vice more affordable again.

Late last year, coffee prices on the futures market started an upward spiral that resulted in major price hikes on the retail market level. In English, that means that coffee roasters, including the major coffee roasters like Smuckers, which produces Folgers and markets Dunkin Donuts coffee in stores, and Kraft, which produces Maxwell House coffee, were paying higher prices for green coffee beans.

Because coffee prices get a lot of support from various governments around the world, the rise and fall in the price of a cup of coffee seldom gets passed on to the consumer. This time, however, the major coffee companies decided the price increase was too much of a hit. Just a few months ago, a number of coffee companies raised their prices significantly. Smucker, for example, raised its coffee prices by 10% last August, another 10% in February and by 11% in May. Smucker’s closest U.S. competitor, Kraft, hiked the price of Maxwell House ground coffee by 70 cents a pound and of instant coffee by 6.25 cents per ounce in March. That followed a similar price increase in December.

In essence, that means the can of coffee you were buying for $3.29 last July cost you about $4.50 this month.

Last week, J.M. Smucker cut the price for most of its coffee brands, including Folgers, Millstone and Dunkin Donuts coffee on the supermarket shelves by about 6% — that’s a drop of about 20 cents for a can of coffee. This week, Kraft followed suit and dropped the price of Maxwell House by about the same amount.

Why Coffee Prices Spiked

The biggest reason behind the spike in coffee prices was the fear of an imminent drop in the green coffee supply. The 2008 and 2009 coffee growing seasons, both in South America and in Africa, were marked by poor weather, drought and a significant decrease in the harvests of coffee beans around the world. Most coffee growing countries warehouse a portion of the coffee harvested each year so that they can even out coffee production during off years by bulking up the supply from their stores. Unfortunately, a few years in a row of reduced coffee production had depleted those stores and raised the spectre of a serious crunch in the supply of coffee. Add to that the fact that the demand for coffee is steadily rising as the popularity of drinking coffee rises in China, one of the largest markets in the world, and you had the makings of a major “oh, no!” moment for the coffee industry.

However, the International Coffee Organization reports that the biggest South American and Central American coffee producers are on track to have their largest coffee bean harvest in three years, with Mexico, Colombia, Peru and other Central American coffee growing countries all reporting larger than usual coffee harvests. In fact, June 2011 coffee exports worldwide were more than half a million bags more than they were in June 2010.

The good news drove coffee prices down by about 2% on the world futures market, and allowed the coffee roasters to revise and reverse their latest price increases, making your morning cup of coffee more affordable this week than it was last week.