Coffee toasters who bet on lower prices chose not to cover themselves. Now consumers will pay the price.
Companies that usually take positions in the futures market to protect themselves from price fluctuations changed course when prices began to rise last year, betting that they could ensure better treatment later. But the shortage of supply persisted and prices continued up, leaving companies such as Jde Peet’s NV or Starbucks Corp. without other option than to increase costs for consumers.
Now, one of the buyers’ coverage indicators is close to their lowest level in more than 11 years And to toasters are expected to have their much higher costs on consumers, who are already paying the highest price in history for coffee. The average price of ground roasted coffee pound reached the record of US $ 7.25 the pound in February, according to the US Labor Statistics Office.
“The reality is that it is inevitable that important price increases occur”said Rafael Oliveira, general director of the Titan of Café Jde Peet’s NV, at a conference on results held in February. The financial director of Starbucks, Rachel Ruggeri, said in January that the products of the company sold in supermarkets will be affected “more significantly” than other areas of their business. Both executives said they expect the increase in prices to press the retail sales volumes.
Coffee prices reached a record at the beginning of the year after the drought that affected the crops of the main producer, Brazil. The shortage caused the market to enter a backwardation situation, in which contracts with previous date are more expensive than later. As a consequence, keeping grains in stock has become too expensive And the toasts are working “by lung”, that is, buying raw grains in very small lots and entering the market in the last possible moment. Merchants, lacking liquidity, cannot finance the transport of grain from the place of production to consumption.
“The toasters are spending trouble,” says Thiago Cazarini, corridor of the largest coffee region in Brazil. “Some of them are probably at this time working below the cost of raw materials, of the entire operation.”
The smallest and medium -sized toasters, meanwhile, continue to stay away from the futures market.
Gregorys Coffee, a New York company with more than 50 establishments in the US, used to use futures to set the prices of almost all its coffee. But now, given the market structure and high prices, “most people in our size do not see a great opportunity to cover themselves,” said general director Gregory Zamfotis.
Tomas Araujo, Stonex Group Inc, said the toaster are waiting for the market to fall a little before placing new coverage. “The point is that I am not sure that we will get to that point.”
