Surging coffee futures jack up java prices

By Lynn Moore –
Coffee sold on grocery shelves and in workplace dispensers is going up in price as coffee roasters offset surging futures prices caused in part by speculators, bean counters say.
But the jack in java may not immediately be felt in gourmet coffee shops, where the cost of what is poured into the cup is relatively minor, industry officials said yesterday.

“We have no choice; we have to pass prices on to the retailer,” said Gerald Geoffrion, chief financial officer for Van Houtte Inc., one of North America’s leading gourmet coffee roasters and distributors.
The Montreal-based corporation, which last year sold about 11 million kilograms of coffee to North American supermarkets, offices and coffee shops, recently added six per cent to the price of its office-machine coffee and, on April 1, will add 30 cents a pound to Van Houtte coffee sold to food retailers.
A Kraft Canada director said the prices of its Nabob and Maxwell brands are set to go up April 24.
Retailers have yet to be informed of the details, corporate affairs director Susan Davison said.
Last weekend, the U.S. division of Kraft increased the suggested retail price on its Maxwell House brand by 12 per cent, she said.
That scenario applies industry wide, said Sandy McAlpine, president of the Coffee Association of Canada.
The culprit is the surging price for the high quality arabica coffee beans, he said.
The “C contract” was about 70 cents U.S. a pound in January 2004, about $1.03 this January and $1.35 this week, he said.
(Over the past 30 years, arabica futures once broke the $3 mark and reached about $2.75 three times, McAlpine said.)
Arabica futures had been relatively stable in recent years, with spikes occurring in tandem with such things as unseasonable weather in coffee-growing regions, McAlpine said.
In 2004, there was even talk of a coffee glut after Vietnam emerged as a major coffee trader. That chatter changed after reports that the two single biggest coffee producers, Brazil and Vietnam, were looking at relatively smaller crops this year and next, McAlpine said.
Many observers had felt a balanced market was returning, “but the financial market has seen … fit to act as though there is going to be quite a squeeze on coffee supplies,” he said.
Geoffrion agreed.
“Our information is that there is plenty of coffee available” and the price of C contracts should be around $1, but it’s not and “a good part of the increase is due to speculation,” Geoffrion said.
Van Houtte has not yet decided to increase prices to its own coffee shops but that may come, said Geoffrion, whose firm buys coffee three to six months ahead of delivery.
Among those who could benefit from the current situation – aside from speculators – are producers of what is known as fair-trade coffee, McAlpine said, referring to coffee that is certified to provide an equitable price to producers, usually small farmers.
The price of wholesale fair-trade coffee has been fixed at $1.26 U.S. a pound, with provisions that it increase by 5 cents if C contracts go above that mark, McAlpine and a spokesperson for TransFair Canada said.
So those producers not only stand to get better fair-trade prices, they might be able to get into the conventional market, McAlpine said.
Source: Montreal Gazette

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