As if a cup of coffee wasn't expensive enough, a confluence of factors is driving up farmers' costs to grow the beans and it could begin filtering down to your local cafe before the end of the year.
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After hovering for years near $1 per pound, coffee futures — the price large-volume buyers agree to pay for coffee upon delivery months down the road — doubled in late July, reaching heights not seen since 2014. Though prices have eased a bit, they remain elevated at about $1.90 per pound.
Coffee lovers already paying $8 or more for a bag in the supermarket or up to $5 for a cup may despair over even-higher prices, but a spike in coffee prices on the international futures market doesn't always trickle down to the consumer.
Here's a look at some factors that could determine whether Americans will be paying more for their morning jolt in the near future.
WHAT HAPPENED?
A sustained drought followed by two July frosts blew a hole in Brazil's coffee output, immediately sending wholesale prices for the popular Arabica bean to more than $2 per pound. The frost will significantly affect the 2022-23 harvest, said Carlos Mera, who analyzes the coffee markets at Rabobank.
The Brazil frosts followed COVID-related supply chain snarls, a dearth of shipping containers, labor shortages and other production hiccups. Add in rising costs for virtually everything and you have a bitter cup brewing for coffee drinkers.
"This is unprecedented," said Alexis Rubinstein, the managing editor of Coffee & Cocoa for commodities brokerage StoneX Group. "It's never been this perfect storm before. It's usually just been a supply-and-demand scenario.
"We've never been dealing with a supply and demand issue on top of a logistics issue, on top of labor issues, on top of a global pandemic."
WHY MIGHT RETAIL PRICES RISE?
While it's difficult to determine the size of the crop loss in Brazil, Mera said estimates vary between 2 million and 6 million fewer bags of coffee. That's about 12% of the output from the world's largest producer of Arabica, the bean used for most coffee sold around the world. Lower supplies almost always mean higher prices.
Grace Wood, an industry analyst for market research firm IBISWorld, said if consumers don't see coffee prices rise by the end of this year, they almost certainly will in 2022, as per capita demand is expected to increase.
"That is just going to contribute to more demand that is going to further disrupt operations and make it more difficult for operators who are already experiencing supply issues," Wood said.
Mera said people who buy coffee beans in the grocery 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 represents about 5% of your cup of hot coffee, so roasters "may not need to carry over the increases right away."
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