Breakout

Your morning cup of coffee just got more expensive

Kevin Chupka
Breakout

There’s been plenty of chatter lately about the rising price of coffee   not the coffee you buy at Starbucks or Dunkin' Donuts, or the can of Folgers you pick up at the store, but the commodity itself. Coffee futures have shot up 60% because of a smaller-than-expected coffee crop in Brazil, says Joe Fahmy of Zor Capital. Brazil is the largest producer of coffee beans.

J.M. Smucker (SJM), owner of Folgers and the supermarket arm of Dunkin' Donuts coffee, has announced an across-the-board price increase of 9%. It’s the first such increase in three years.

So will consumers pay up for their daily caffeine fix? Fahmy is all but sure of it. “I just think people will end up getting used to it,” he says, citing historical price increases in other things such as oil. “Just like we are used to now, instead of $2 gas, $4 gas. People will get used to $3, $4, $5 cups of coffee as they raise the prices.”

But is this price increase really necessary, or are we being gouged because we’re addicted to coffee? Prices of the commodity, after surging from under a dollar a pound to more than two dollars a pound, are coming back down now. Joe Fahmy has seen this before. “I think with addiction type of stocks and with these commodities that, as they raise the prices, I think that they can slowly raise them and they will stick. With soda, with cigarettes, with energy drinks, with coffee especially  your Starbucks (SBUX), your Green Mountains (GMCR) and Dunkin Brands (DNKN these stocks have been some of the biggest winners over the last ten years because of that specific reason, and if they change the price, is it gonna change how people consume? I don’t think so at all.”

So regardless of the reason, it seems you’ll be paying more for your cup of joe. Why not invest in the same space to pay for it? Fahmy says, “I don’t trade coffee futures, however I think with a basket of those stocks [Starbucks, Dunkin' and the like] or even the coffee ETF (JO) you can do OK because these prices will continue to slowly increase.”

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