Why coffee still costs $9.30 a pound when beans are 18% cheaper

Transcript

Nine dollars and thirty cents. That’s what a pound of ground coffee cost in America in August, up forty-seven percent in two years. But the beans it’s made from have fallen twenty percent from their peak.

The gap. In September, arabica beans averaged three dollars and twenty-nine cents a pound on world markets, by the World Bank’s count. That’s eighteen percent less than a year before. Robusta, the cheaper bean used in instant coffee and blends, is down thirty-seven percent from its peak.

Why beans spiked. Why did beans spike? Drought and heat hit the world’s two biggest growers. Vietnam’s harvest fell two years running. In Brazil, a drought that U.S.D.A. analysts said El Niño made worse cut the crop below forecasts. With stocks thin, coffee hit a record price in February of last year.

The shelf catches up. On the shelf, the price kept climbing. Smucker, which makes Folgers, raised prices in May and August of last year, citing higher costs. A pound of ground coffee kept rising, to nine dollars and seventy-two cents in April. That’s five months after the beans’ last peak.

Tariffs on, tariffs off. Tariffs added to the bill. Last year, coffee from Brazil, the world’s biggest grower, faced a fifty percent U.S. tariff, and coffee from Vietnam twenty percent. In November, the White House exempted coffee. In February, the Supreme Court struck those tariffs down, and roasters began collecting refunds.

Locked in. So why hasn’t the bag come down? Part of it is timing. Roasters buy beans months ahead and lock in prices with contracts. Keurig Dr Pepper’s finance chief told investors there is a lag before cheaper beans reach its costs. A U.S.D.A. study found a lasting change in bean prices takes several quarters to fully reach the shelf.

Not yet. Part of it is a choice. In June, Smucker said it planned a list price cut if prices kept falling. In August, its chief executive said, we won’t take a list price decline at this point. It says it is passing on lower costs through promotions instead. That quarter, profit in its U.S. coffee business more than doubled.

El niño. Now there’s a new risk. Government forecasters say El Niño is strengthening, with a better than ninety percent chance of a very strong event this winter.

The next harvest. Brazil grows nearly two in every five coffee beans in the world, and this year’s crop is a record. But the U.S.D.A.’s team in Brazil warns that heat during flowering could cut next year’s harvest. In August, El Niño fears pushed arabica up for a week, until rain in Brazil brought it back down.

The morning bill. So here’s the morning bill. Nine thirty a pound for ground coffee. Up forty-seven percent in two years. Arabica down eighteen percent in a year. And the shelf price just four percent off its peak.

Next. The next number comes on October fourteenth, when September’s inflation report shows whether the bag has started to follow the beans down. If El Niño reaches Brazil’s next crop first, it may not get the chance.