When Will Coffee Prices Go Up?

We asked how high could the price of coffee go, in our article, Americans Are Drinking More Coffee.

Over the decades the price of coffee has risen above $3 a pound and fallen as low as 50 cents a pound. Speculators such as readers of Seeking Alpha are anticipating as high as $3 a pound as stock piles fall and Americans as well as everyone else drink more coffee.

Three dollars a pound is twice what basic Arabica coffee futures trade at today. When will coffee prices go up in the grocery store and when will they go up at your favorite coffee shop? It turns out that Starbucks may boost coffee prices this month according to Market Watch.

Chances are that iced, sugar-free, vanilla latte with soy milk is going to cost more starting next week.

For the past two years, Starbucks has raised prices in July – and this year is no exception with some drinks rising by as much as 30 cents.

The Seattle coffee giant SBUX, -0.14%  acknowledged the increases after a computer glitch put the higher prices into effect before the chain was ready to break the news to employees and customers.

“On July 12, Starbucks is planning a small price increase on select beverages. Unfortunately, that price adjustment was prematurely entered into the point of sale systems in our US company-operated stores” the company said in a statement on Friday.

Is Starbucks raising coffee prices because the beans are more expensive or to stay ahead on other business costs? In our article How Much Does Colombian Coffee Cost we noted that the cost of basic green Colombian coffee is about $2 a pound when shipping is included and high quality green organic coffee can run as high as $8 a pound. We broke down the pricing of a coffee house in our article, How Much Is Organic Coffee.

A coffee house will use about 2 grams of coffee beans per 10 ounce cup. That works out to about 30 cups of coffee per pound. If the roaster paid only $3 a pound for imported green beans and added $6 a pound to roast and distribute their base cost of just the coffee would be $9 divided by 30 which equals 30 cents a cup. However, you need to factor in the total cost of running a coffee shop and the need to make a profit and then you get your $3 or more cup of coffee.

Let’s assume that a coffee shop pays $2 a pound for basic Arabica coffee beans purchased in bulk. If they get 30 cups of coffee for each pound that works out to 7 cents worth of coffee in each cup! If the price of coffee doubles to $3 a pound from $1.50, add shipping and you get $3.50 a pound. Then the coffee in your cup will cost the coffee shop twelve cents! Starbucks is not raising the price of their coffee because they expect more expensive beans. They are looking to offset higher business costs or simply looking to increase their profit.




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