That Coffee Habit of Yours Is Getting Awfully Expensive

A drought in Brazil could push prices higher for your Starbucks grande hot triple five-pump vanilla non-fat no foam whipped cream upside-down caramel macchiato.

Mar 16, 2014 at 11:45AM

Coffee prices hit a two-year high this week as Brazil's worst drought in 80 years continues to cut production predictions. With the next cup of Joe in flux, is it time to switch to tea?

Brazil is big
When it comes to coffee production, Brazil is the Venti of all Ventis (that's "extra large" for you non-Starbucks Corporation (NASDAQ:SBUX) addicts). In 2012 (most recent data), the South American country produced a whopping 3,037,534 tonnes of beans – more than double Vietnam, its closest competitor.

In fact, Brazil has been the biggest coffee producer for 50 of the 51 years data have collected by the Food and Agriculture Organization.


Source: Data from 

Since green coffee beans lose about 20% of their weight when roasted, and a single cup of coffee uses about 10 grams of beans, a back-of-the-envelope calculation shows that Brazil was the birthplace of 243 billion cups of coffee in 2012.

Cut crops and increased costs
But bigger isn't always better. The coffee-producing capital of the world experienced its second-driest January in 80 years, and farmers are worried that yields are going to take a tumble.

Arabica coffee futures rose to a two-year high to $2.08 per pound this Tuesday, as analysts took a second look at estimates. Brazil is the top producer of Arabica, and bean costs have soared around 85% so far this year amid fears of a trimmed 2014-2015 crop, with ripple effects extending through 2016.

Not only do droughts directly affect coffee yields, but they can also skyrocket electricity costs. Brazil depends on hydropower for 80% of all its generation, and low reservoir levels means less power pumping from hydroelectric dams.

More bucks for Starbucks Corporation?
The coffee plantations of Brazil are a long way from your local Starbucks Corporation store, but there's already evidence that your cup of Joe isn't entirely disconnected from crops.

In 1994, "soaring coffee prices" pushed the coffeemaker to increase its own prices for the first time in three years. In 1997, Starbucks Corporation increased prices again by around 5 cents as commodity prices hit a 20-year high. And in 2011, the company shot prices up 15 cents in certain regions to offset soaring coffee costs.

Last year, however, Starbucks Corporation got a break. In an October email correspondence with the International Business Times, Starbucks Corporation expected to save around $100 million from cheaper coffee. And in its latest earnings report, Starbucks Corporation CFO Troy Alstead confirmed that lower commodity costs added 0.5% to the coffee company's full-year earnings. Brazil's record 2012 crop undoubtedly helped slow any worries of a supply squeeze. That kept coffee price increases to just 1% across U.S. stores.

But if past years are any evidence, the price plateau is over. Starbucks Corporation is most likely gearing up for another menu modification, and you should be prepared to pay significantly more for your venti mocha frappuchino in the near future.

A better buy
With coffee prices on the rise, there's any easy alternative to make money instead of spending it. Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Justin Loiseau has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information