Are Coffee Prices Going Higher in 2011?

| December 30, 2010 | 0 Comments

There’s a good chance you’ve had at least a sip of coffee today.  You might even be enjoying a cup while reading this article.  But have you ever wondered how much it actually costs to produce a cup of coffee?

What about the price you paid for your coffee?  Do you notice if the price of coffee changes?

You probably did notice a recent price hike if you bought your coffee at Starbucks.  It made national news when Starbucks raised their prices this autumn.  Besides, when it takes five bucks to buy a latte, you tend to pay attention!

Here’s the thing…

Coffee is a commodity just like wheat, gold, or oil.  And this commodity’s price may be on the rise in 2011.

Heading into 2011, there are some interesting trends going on in the coffee market.  You probably haven’t heard about the recent turmoil.

According to the Wall Street Journal, coffee buyers aren’t always getting what they expect when they take delivery of coffee beans.  It seems some beans have been sitting in the warehouse well past their prime… and they’re getting stale.

You see, stockpiles of coffee have decreased by 44% this year.  Poor weather conditions have hurt the coffee supply and stores are dwindling.  Now buyers are getting stuck with old coffee.  And they’re not happy.

So what’s the solution?

Here’s one… warehouses are going to start stocking Brazilian coffee beans.  In fact, Brazil is the world’s leading producer of coffee.  You’d think the world’s largest coffee grower would be supplying the world’s stockpiles by now…

As usual, there’s more to this situation than meets the eye.  Brazilian beans haven’t been included in stockpiles because the coffee is often considered to be lower quality.  Sounds like a case of favoritism to me.

My thought… as a coffee buyer, wouldn’t you rather take a chance on fresh, lower quality coffee instead of several year-old beans?  Hey, if the beans are stale, it doesn’t matter where they come from!

Well, it turns out it’s a moot point now.  The coffee supply shortage is forcing the hand of the futures exchange in charge of storing beans.  They’ve decided including Brazilian beans is a necessity.

And that’s not all…

The exchange is also implementing new rules to improve the quality of the coffee in storage.  Coffee sellers will pay a penalty for any beans over two years old.  What’s more, exchange officials will taste the coffee before it gets admitted to the stockpiles… making sure it’s good enough to store.

Shouldn’t this have been happening already?

Whatever your opinion on Brazilian coffee is, it’s an important step for the exchange to include Brazilian beans in the stockpiles.  Coffee inventories are rapidly depleting.  And it’s causing prices to spike.  In fact, coffee prices recently hit a 13-year high.

But a new inflow of beans should help keep supplies under control… for the time being.

Regardless, I think 2011 is going to be a bullish year for coffee.

The Brazilian coffee influx won’t kick in for many months, perhaps even years.  And coffee supplies are still shrinking.  Meanwhile, harsh weather conditions have taken a toll on the coffee crop.  What’s more, demand for coffee is rising as the number of coffee drinkers in China and India grows.

On top of all that, coffee inventories will likely dip even further as old beans are culled from the stockpile.

All in all, it looks like coffee prices have the potential to soar in the coming months.

It’s already been a wild year for commodities, especially for “softs” like coffee, cocoa, sugar, and cotton.  2011 could be another crazy year for these products.  And coffee just might be leading the charge.  Keep that in mind when you’re in line at Starbucks this holiday season… and don’t be surprised when your cappuccino costs you five bucks!

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Category: Commodities

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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