Coffee prices are going up at the supermarket and in the futures markets, and Starbucks is most likely one of the largest players in both markets.
In announcing a retail price increase of about 12 percent on Starbucks coffee sold in supermarkets, the company blamed financial speculators for driving prices up.
Futures prices are certainly higher and have nearly doubled in the past year. At a recent level of about $2.70 a pound, the commodity is still significantly below the record high prices seen in the 1970s when runaway inflation pushed most commodities to unsustainable highs.
This time, the markets seem to be reflecting the forces of supply and demand, and speculators may be profiting but they are unlikely to be the sole cause. Supply, according to the International Coffee Organization, is down and production in Brazil is likely to be more than 7 percent lower than it was a year ago.
Demand is up, in no small part to the success of Starbucks and other premium coffee providers. The coffee industry group expects demand to be up at least 2 percent. Basic economics says that increased demand and lower supply leads to higher prices.
Starbucks is believed to lock in prices through the futures market. This allows the company to know how much its coffee supply will cost over the next year or 18 months.
Their price increase signals that they don’t believe the price spike is a temporary condition caused by speculators, It could be caused by their concern than higher prices are here to stay.
© 2017 Newsmax Finance. All rights reserved.