As Coffee Bean Prices Fall, Which Coffee Stocks Are the Winners?

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By Eric Volkman | August 25, 2012

Starbucks (Nasdaq: SBUX ) is a company heavily dependent on one commodity: raw arabica coffee. It’s nice, then, that prices for those beans have generally been dropping in recent months. And based on futures contract data, that trend looks as if the trend will continue. So that seems a clear win for the company and other arabica buyers. But not all business advantages can be exploited equally, and Starbucks might not be the company best positioned to capture the opportunity.

Drier and cheaper

Drier and cheaper
The prolonged dry weather badly affecting crops in the U.S. has been beneficial for certain commodities abroad, most notably coffee. An unusually heavy bout of wet weather affecting output in java-growing countries several years ago is largely over, bringing production back to former levels. Forecasts indicate that production in Colombia, for example, could reach a half-decade high of 9 million bags (approximately 1.2 billion pounds) next year; 2011’s haul of 7.8 million (1 billion pounds) was the lowest in 35 years.

Prices have gone south thanks to the increased supply. These days, a pound of coffee on the commodities market will run a buyer around $4.20 per kilogram, or $1.91 a pound. That’s quite a far way down from the weather-influenced price spike of last year, when java changed hands at prices in excess of $6.60 per kilo ($3 per pound).

Complete Story here



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