After hitting a fourteen year high in May, the burden of pricey coffee commodities was taking its toll on restaurants, franchises like Starbucks (NASDAQ:SBUX) and Dunkin’ Brands (NASDAQ:DNKN), and local neighborhood coffee shops. Thankfully for businesses and their customers who appreciate a cheap cup of coffee, prices slid through June and July and entering August futures are nearing a 6 month low. Inside Futures reports behind the price declines are, “(1) reduced supply concerns with Brazil’s coffee harvest 64% completed and most its beans of high quality, according to Somar Meteorologia and (2) ICO data that showed May global coffee exports rose to 9.3 mln bags, up +16% y/y.”
For the medium term outlook though the current drop off in price may not be sustainable. Production is expected to decrease this year while demand remains high. “Coffee prices are moving lower from the 14-yr high but the long-term trend remains bullish. Coffee production in 2010/11 rose +8.8% y/y to a record 137.9 mln bags (USDA), but production should fall -2.1% y/y 135 mln bags in 2011/12 Brazil’s 2011/12 (Jul-Jun) production will fall -9.7% y/y to 49.2 mln bags on the off-year of the biennial cycle (USDA).”
Here are some stocks that should gain from a short term dip in coffee prices:
iPath Dow Jones-UBS Coffee Subindex Total Return ETN (NYSE:JO) +1.33%, Peet’s Coffee & Tea, Inc (NASDAQ:PEET) +0.99%, Starbucks (NASDAQ:SBUX) -1.18%, Coffee Holding Co., Inc. (NASDAQ:JVA) +5.48%, Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) -1.35%, and Dunkin’ Brands Group Inc. (NASDAQ:DNKN) -3.41%.