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This year we've seen sharp price increases in commodities, especially in the weather sensitive agricultural sector. Coffee and sugar are in the spotlight this week.
Processors who buy raw commodities and process them into consumer products are caught is in a price squeeze. On the one hand they must pay more for the raw product and on the other they are up against consumers who are cost conscious.
The Wall Street Journal (subscription required) reported that torrential rains in Columbia have reduced the crop of arabica beans, prized for their special flavor. On Friday, March coffee futures closed at $2.25 per pound, up 7.5% this week. The spike in prices caused Kraft Foods (KFT) to raise its prices for Maxwell House and Yuban Coffee brands. Starbucks (SBUX) and Farmer Brothers have also increased prices.
Temperatures went below freezing in Florida, causing "severe damage" to its sugar cane drop. World sugar prices gained 4.8% on Friday, closing at a five week high of 32.5 cents per pound. For the week, sugar is up 12%.
To emphasize the urgency of the problem, Abdolzera Abbassian, secretary of the United Nation Food and Agriculture Organization (FAO) said: "Almost all commodities are in a tight supply-demand situation and so we would need to see high production in all commodities, which is unlikely."
Consumers can expect higher prices at the supermarket as processors are pressed to shift price increases from their raw material purchases to finished products.
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Reader Comments (Page 1 of 1)
12-19-2010 @ 5:37AM
lewis said...
The shopper can control the price by stocking up at least a 6 months supply when the price is low and not buying when it is high, as we do.
12-19-2010 @ 10:35PM
Bill said...
Comsumer prices will have to go up more than the increase in raw materials. Business know that there will be fewer people that will buy when the price goes up. The business fixed costs remain the same. Those cost must be covered or the business must close. Knowing that there will be fewer purchases to cover the fixed business cost, the mark up must take that in to account.
12-20-2010 @ 7:05AM
Monicamn S. Gonzalez said...
That's a great business idea! Many people ( like me ) love coffee in the morning or when are about to engage in a long trip or just plain work. In my humble opinion; as a former part time worker in a coffee shop, black coffee is a most ( Don't add sugar to the whole jug....
12-20-2010 @ 1:26PM
william lindblad said...
While I believe the coffee part as spikes in that price are frequent, the sugar end, especially Fla, looks like promotional nonsense. Since the sugar cane crop in that state grows in the Southern regions and Plant City and the strawberry crop is Central, and the berries did not freeze? Sounds fishey as cane is a stalk, like corn and that type of plant is not as fragile as a berry.
Sounds like the cereal makers at work as they want more sugar import and at lower prices (remove tariff).
When buying a bag of sugar at the gorcer - look at label and see if it includes the word "cane". If it does not, it is beet sugar and it looks and tastes the same. There is no sugar beet shortage. For home use there is also stevia, easy to process and can be bought as seed or plant. It's 30 times sweeter.