May 24, 2011 / 11:46 AM / 8 years ago

Smucker hikes Folgers coffee 11 percent in fourth rise

NEW YORK/BANGALORE (Reuters) - Top U.S. packaged coffee maker J M Smucker Co (SJM.N) raised prices for key brands including flagship Folgers by an average of 11 percent on Tuesday, its fourth and biggest hike in a year.

The increase comes even after benchmark coffee futures slipped back from a 34-year high, as roasters are still absorbing the steep costs of beans bought during the long rally. Smucker has raised prices by a total 38 percent since last May, while arabica futures in New York have doubled.

Smucker, which licenses the Dunkin’ Donuts brand and also sells Millstone, has not moved as intensely as chief rival Kraft Foods KFT.N, which has raised prices by roughly 56 percent since May 2010, with its last increase to Maxwell House up a large 22 percent on March 17.

Rising retail prices are often taken as a bullish signal by coffee traders who reckon that roasters will be more prepared to pay up for physical beans. But with U.S. shoppers facing high fuel costs and food prices, some have begun asking at what price consumers might begin to cut back.

Until now, there have been no obvious signs that demand for coffee in the United States has been dampened by the price increases. And many analysts say rapid new demand from emerging markets like China and India will compensate for flattening growth in mature markets.

The issue is a pressing one for traders considering whether the 12 percent fall in prices this month is a temporary correction or the end of a nearly year-long rally.

Arabica coffee futures touched 34-year highs at $3.0890 per lb earlier this month, more than doubling over the past 11 months, on speculative buying and tight supplies of high-quality arabica beans. Until this month, coffee had been the best-performing commodity this year.

The rising costs have led companies across the board like Starbucks (SBUX.O), Green Mountain Coffee GMCR.O and Nestle’s NESN.VX premium portioned coffee brand Nespresso, to pass on the costs to shoppers.

A Kraft spokeswoman said the company did not have anything to announce on Tuesday.

Arabica coffee is typically roasted and used in brewed coffee whereas robusta beans are much cheaper and are typically processed into instant coffee or used as a minor component in roasted blends as a lower-cost alternative.

Robusta futures on Liffe climbed about 95 percent in the rally that began in June 2010, reaching a three-year peak at $2,672 per tonne in March.

The premium of arabica over robusta hit a record high this month at $1.89 per lb, with coffee traders and importers saying some roasters are offsetting rising costs by increasing the amount of robusta and lower costing arabica beans that they put in their blends. Kraft and Smucker declined to comment on purchasing details.

The International Coffee Organization estimates that global coffee demand will hold firm helped by faster-paced lifestyles in China and other Asian economies, despite higher prices.

Shares of the Orrville, Ohio-based Smucker were up 0.8 percent at $77.52 by 11:42 a.m. EDT on the New York Stock Exchange.

Reporting by Mihir Dalal in Bangalore and Marcy Nicholson in New York; Editing by Maju Samuel and Jonathan Leff

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