Steep coffee prices push Maxwell House up again

NEW ORLEANS Thu Mar 17, 2011 7:13pm EDT

NEW ORLEANS (Reuters) - Kraft Foods KFT.N said on Thursday it upped the U.S. prices for many of its coffees this week, raising Maxwell House by 22 percent, the biggest of four hikes in the past year as roasters face soaring markets.

The increase follows a February hike of 10 percent by rival J.M. Smucker Co (SJM.N), which owns Folgers, and will test consumers' willingness to pay ever-higher prices for their java.

Kraft has raised prices by roughly 56 percent since May 2010.

Retail price increases can help lift futures as sellers believe companies will be willing to pay higher rates. However, many in the coffee industry do not expect price gains to affect demand as the popular drink is still considered an affordable luxury, equating to an increase of mere cents per cup.

Kraft's latest price hikes took effect on Wednesday and came after arabica coffee futures fell from a 34-year high this month.

"(The) increases are due to sustained increases in green coffee," Kraft spokeswoman Bridget MacConnell told Reuters on the sidelines of the annual National Coffee Association conference in New Orleans.

Arabica futures more than doubled by early March in a rally that began in June 2010 on fund buying and tight supplies, with the benchmark May contract reaching a 34-year high for the second position at $2.9665 per lb this month.

Roasters have been forced to raise their list prices over the past nine months as a result of the sustained rally.

Kraft most recently raised its prices in December.

Robusta futures trading on Liffe in London, primarily processed into instant coffee but used increasingly as a cheaper alternative in roasted blends, have joined the rally, hitting a three-year high at $2,661 a tone on Thursday.

Boyd Coffee Co, a medium-sized roaster based in Portland, Oregon that distributes coffee primarily to restaurants, hotels, convenience stores and casinos, has also made several price increases since the rally began.

Michael Boyd, a coffee buyer for the company, declined to specify the value of the price hikes.

"The end consumer can pay five to 10 cents more for a 16-ounce cup (of coffee). Most consumers aren't going to blink an eye for an extra nickel or dime," Boyd told Reuters on the sidelines of the conference.

Many larger roasters can increase the amount of lower-cost robusta beans in their blends to help absorb the rising cost of arabicas, but this is not an option for Boyd Coffee, as the majority of its coffee is 100 percent arabica.

Like many higher-end roasters, Boyd Coffee has a specific taste profile that limits the degree to which the company can change its blends.

"Hedging has kept our costs down initially but as (prices) kept going up and stayed up, we have passed on increases to our customers and encouraged our customers to increase their costs by a nickel a cup and cover increases easily," Boyd said.

Kraft raised the price for Maxwell House and Yuban ground coffees by 70 cents per pound equivalent, and for instant coffees by 6.25 cents per ounce.

Excluded from the increase were single-serve Tassimo items and the Maxwell House International line of specialty soluble beverages, MacConnell said.

Prices will rise in Canada too, where the cost of Maxwell House and Nabob Roast and Ground, and Maxwell House Soluble coffees will increase by 6 to 9 percent, effective March 20, Lynne Galia of Kraft Canada told Reuters in an email.

(Editing by Dale Hudson)