Starbucks, Others About to Be Hit by
Skyrocketing Coffee Prices
Justin Rohrlich December
13, 2010 1:30PM|
supply shortage has money manager Shawn Hackett predicting
coffee prices doubling by June.
first introduced to Colombia by European Jesuit priests
in the mid-16th century, and the country’s first exports
of what are known today as the finest Arabica beans
in the world began in 1835, with a shipment of 2,500
bags to the United States.
will export considerably more than 2,500 bags of coffee
this year, the devastating rainfall that killed 176
people, injured 225, left 1.5 million homeless, and
caused the government to declare a “public disaster”,
the country’s coffee crop will likely be a relative
disaster, as well. The fact that the rain is forecast
to last into the first quarter of 2011 only adds to
the existing problems.
to money manager Shawn Hackett, founder and president
of Hackett Financial Advisors, a firm with a specific
focus on agricultural commodities, Colombia normally
produces approximately 12 million bags of coffee a year.
However, as the weather has severely affected 494,200
acres of farmland, Hackett tells Minyanville that it’s
“very, very clear we are going to see another failed
Colombian coffee crop.”
and the surrounding region has had the worst rainfall
in more than three decades -- they even had to shut
down the Panama Canal, which was only the third time
that’s happened in history,” Hackett says. “Generally,
rains are good for coffee -- at the right time of year.
They’re terrible, though, when they occur close to harvest
time -- which is right around now. You can’t pick wet
beans, all that water creates fungus problems, and,
as a lot of growers dry their beans outdoors, well,
that’s obviously not possible during torrential downpours.”
coffee crop was off by 32% last year, to just under
eight million bags, the smallest crop since 1976. Because
of this, as well as a lackluster crop of nine million
bags in 2008, Hackett says the “market desperately needs
was expecting a recovery back to the 10-12 million area,
but it now looks like it will come in somewhere in the
seven to nine million range,” he says.
stimulate a “huge rush into the futures market, as everyone
tries to buy whatever coffee is remaining,” Hackett
says. “Problem is, there are only about 1.5 million
bags left. As we get into January, we’ll start to see
the cash differential start to take off, as the cash
price begins to rise against the New York futures price.
And this will be the straw that breaks the camel’s back.”
now at $2.10 a bag, which Hackett points out is twice
the $1.05 at which it was trading in 2008. And he sees
it reaching $4 a bag by June.
“$4 is a
price that will really be a killer for the roasters,”
he says. “A move that far up will really create a tremendous
affect not only names such as Starbucks (SBUX), Green
Mountain Coffee Roasters (GMCR), Peet’s Coffee &
Tea (PEET), Caribou Coffee Company (CBOU), and Farmer
Brothers (FARM), but importers, exporters, shippers,
and commodities trading houses.
them have factored $4 coffee into their models,” Hackett
says. “They’ve been buying cheap coffee for 20, 30 years,
and never figured on this.”
it to the recent rise in cotton prices, which also caught
everyone by surprise “because no one’s ever seen $1.50
“No one thought
it could happen,” he says. “No one planned for it. The
same thing is happening with coffee. The market is going
to do to the coffee companies what cotton prices are
currently doing to clothing manufacturers. There’s only
so much lower-quality Robusta the coffee companies can
mix into their blends, and they’ve already maxed that
out. Any more, it won’t have the right flavor. A company
like Hanes (HBI) can turn to synthetic fibers if they
need to. Green Mountain can’t.”
staying out of names like Green Mountain and Starbucks,
or getting short.
want to be on the long side of this,” he says. “We haven’t
figured out how to make synthetic coffee yet. If you
find some, let me know -- I’ll be buying it.”