Agribusiness Investing: Are Coffee Investors Toasting to Goldman Sachs

On Tuesday, Goldman Sachs (NYSE:GS) announced that it is turning “more bullish” on raw materials (NYSE:XLB).  Although the Dow (NYSE:DIA) and S&P 500 (NYSE:SPY) closed lower, commodities (NYSE:RJA) saw an instant boost on the news.  Oil (NYSE:USO) closed higher to $99.52, gold (NYSE:GLD) is nearing $1525, and silver (NYSE:SLV) finally broke through $36.  With the recent volatility in commodities, let’s look at the action involving the most important morning commodity, coffee (NYSE:JO).

Jeff Currie, head of the London GS commodity research team, said “The risk and reward once again favors being long commodities.”  He also went on to explain, “Economic growth will likely be sufficient to tighten key supply-constrained markets in the second half, leading to higher prices.” For coffee drinkers, higher prices are already here.  The J.M. Smucker Company (NYSE:SJM) just raised coffee prices for the fourth time in a year.  The average price hike is 11%, which is also the biggest hike in a year.  The price hikes will affect brands such as Folgers and Dunkin’ Donuts.  Other companies such as competitor Kraft (NYSE:KFT) have also increased coffee prices recently.  Back on March 17th, Kraft raised prices on its Maxwell House coffee by 22%.

Coffee traders have been brewing a storm in coffee futures.  Earlier in May, arabica coffee futures more than doubled from last year to reach a 34 year of $3.089 per pound. Robusta futures (cheaper coffee bean) have also jumped a steaming 95% since last June.  In March, robusta futures climbed to a 3 year high of $2,672 per tonne.  The world’s largest coffee chain, Starbucks (NASDAQ:SBUX), has been successful in passing rising coffee bean costs onto customers.  In March, it also announced price increases of 12% inorder to offset costs and reach profit targets.  The stock is up 13% in the last 3 months.

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Disclosure: No positions.