Is Starbucks Actually Lowering Prices?

There’s still an awful lot of coffee in Brazil. In fact, exports jumped 11 percent in March when compared to 2012, leading to a slide in coffee futures and dramatic drops in arabica bean prices earlier this week. Big players like J.M. Smucker (NYSE:SJM) have reacted accordingly, lowering prices on Folgers and Dunkin’ Donuts packaged coffee. Now, Starbucks (NASDAQ:SBUX) is countering their move: the Seattle-based company announced it will lower prices on several packaged brands.

Starbucks name-brand coffees and the company’s Seattle’s Best line will be at least 10 percent cheaper in May. Starbucks’ in-store prices will remain the same, as the move will affect only the packaged brands sold in supermarkets and other retail locations. There was some uncertainty earlier this year in the coffee supply chain, when Central American producers faced “coffee leaf rust,” according to the International Coffee Organization.

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However, any shortcomings in Central America were trumped by a larger South American output, with Colombia following Brazil with an increased level of production in arabica beans, up 12 percent compared to a year earlier. Brazil’s position as the world’s top coffee producer was nevertheless unchanged, and its March increase in green coffee exports drove the price of arabica beans down far enough to affect retail sales…

In fact, producers of instant coffee who usually use the cheaper robusta bean have reportedly been mixing in arabica as the price dropped to three-year lows recently. J.M. Smucker brought down prices on its popular Dunkin’ Donuts line, and Starbucks will respond with $1 price drops on its two brands in May. J.M. recently reduced its Folgers and Dunkin’ prices around 6 percent.

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Starbucks has been performing well in the markets. The company’s expansion in global markets like India has shown its willingness to execute bold moves as competition grows and supply prices drop. High-end competition in the U.S. has also been a challenge for the Seattle-based producer, yet shares were trading close to the stock’s all-time high as of midday Friday. J.M. Smucker also continued its upward trend, trading over $100 Friday, near its all-time max.

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