Coffee prices skyrocket after Brazil drought

Posted at 6:17 PM, Apr 24, 2014
and last updated 2014-04-24 18:30:19-04

(CNN) — Coffee prices have doubled since late last year, and drinkers of the black stuff may soon start to notice.

The culprit: a severe drought in Brazil, the origin of roughly a third of the world’s coffee.

The dry spell has wreaked havoc on this year’s harvest of Arabica beans, which are used for the vast majority of global coffee production.

“They had a big time drought in January and February, got some showers in March that stabilized the situation, but now they’re entering their dry season,” said Jack Scoville, a commodities futures broker with the Price Futures Group in Chicago. “It’s harder and harder to get rain in there.”

Coffee prices have doubled since late last year, and drinkers of the black stuff may soon start to notice.

Coffee prices have spiked since late last year.

While the spike in coffee futures, now at their highest level in more than two years, probably won’t affect companies like Starbucks that lock in prices a few years in advance, it’s bad news for Dave Anderson, owner of the Roastery of Cave Creek in Cave Creek, Arizona.

Anderson typically buys coffee eight to 10 months in advance, so he hasn’t yet had to raise prices on his customers, which include coffee shops and restaurants in the Phoenix area.

But if prices don’t reverse dramatically by the time he purchases another batch of joe in about a month, he’ll be forced to pass on some of the cost to his clients.

“I’ll absorb some of it, but unfortunately the customer is going to have to share in the price hike as well,” he said.

But don’t start preparing for the brutal effects of caffeine withdrawal just yet.

Anderson said his company, which roasts about 100,000 pounds of coffee per year, will take a bigger hit than the end consumer.

“A coffee house might raise their price a by a nickle or dime,” he said. “For most people at a restaurant, it’s negligible.”

But while some businesses will feel the bite of higher coffee prices, others have already benefited.

Coffee growers in Brazil, for instance, have been compensated for the drought by being able to sell their product at a higher price, Scoville said.

And with commodities prices in the midst of a multi-year slump, some hedge funds, traders, and brokers have profited from coffee’s price surge.

“It’s been an animated market,” Scoville said. “So I’m making a little more money.”