Waking up in the morning is about to get a little more expensive for some people.
A pound of coffee went up $0.60, about 3.7 percent, on Friday alone. Skyrocketing coffee costs over the past few months has led Starbucks to raise prices on its coffees.
Starting Monday morning, cups of coffee sold in over 7,100 Starbucks-owned stores in the United States will see a hike of between 5 and 20 cents. For the company’s supermarket-sold coffee beans and grounded coffee products, that price will be about $1 higher per bag.
That’s nothing of a jump in prices compared with what’s happening in the coffee market itself. The price of a pound of coffee traded on the Intercontinental Exchange has gone from $1.15 in January, to $1.73 on Friday, a 50 percent gain year-to-date. However, that’s down from its prices two months ago, when coffee traded over $2 per pound.
Droughts in Brazil caused a poor coffee crop that lead to higher prices in the early part of the year, notes Gina Sanchez, founder of Chantico Global. Anticipation of a good Columbia crop led to the recent downtrend in the last couple of months, she said.
“However I think there are still some concerns,” Sanchezsaid. “There’s some chatter that there could be a worse crop out of Brazil. The other concern is that longer term, there’s probably going to be an expected weak El Niño tide next year.”
Add to that some dryness in Vietnam and “you could see continued pressure on coffee prices to the upside,” said Sanchez. “That Colombian crop could help, but it seems like there’s going to be more upside than downside.”
(Watch: How Brazil drought impacts coffee)
Katie Stockton, chief technical strategist at BTIG, sees the charts pointing to higher prices in the exchange traded note (ETN) that tracks coffee, iPath Dow Jones-UBS Coffee Subindex Total Return (JO).
“I think it will go higher in the coming months,” said Stockton about JO. She notes that the ETN saw a bullish reversal of a three-year downtrend when the price of coffee halved from $2.38 per pound at the start of 2011, to $1.15 at the end of 2013.
“That was a very significant downtrend that we reversed this year,” Stocktonsaid. “That reversal does bode for higher coffee prices over the long term.”
The small pullback over the last couple of months may be coming to an end, according to Stockton. She expects higher coffee prices ahead.
“That correction has generated an oversold condition,” she said. “An oversold condition near support is where you tend to see firming action in prices.”
To see the full discussion on coffee and JO, with Sanchez on fundamentals and Stockton on technicals, watch the above video.