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.