Starbucks Corp share price down, raises prices as Brazil drought weakens Arabica supplies

Starbucks Corp, the worlds largest coffee-shop operator, will raise the prices at its cafés and its packaged ground and wholebeans coffee starting in July as an unprecedented growth in Brazil hurt supplies and sent Arabica futures prices soaring to the highest level in more than two years in April.

Starbucks spokesman Zack Hutson said that prices at Starbucks cafés will jump by less than 1% starting June 24th, while the cost of ground and wholebean coffee sold in stores will be raised by 8% on July 21st.

Coffee prices have soared 54% this year as an unprecedented drought in Brazils main growing areas hurt the harvest. Brazil is the worlds largest grower of the Arabica variety. Arabica futures surged to $2.19 per pound on April 23rd on the ICE US, the highest level since February 2012. The commodity has fallen by 20% since then but retail prices usually trail the futures market by a few months.

Medium and large size brewed coffee will jump by between 10 and 15 cents in most of the companys cafés, while small and large size lattes and mochas will increase by 15 to 20 cents. Food prices wont change.

Starbucks price adjustment follows the move of other companies like JM Smucker and Dunkin’ Brands Group Inc. Earlier in June, JM Smucker, the maker of the Folgers packaged coffee brand, said it will increase its prices for the first time in three years, while the owner of the Dunkin’ Donuts and Baskin-Robbins chains said it expects a modest price adjustment due to higher commodity prices. Kraft Foods Group Inc. followed up a few days later with a 10% price increase on its Maxwell House and Yuban brands.

Mr. Hutson, Starbucks spokesman said, cited by Bloomberg: “We consider many different factors when we make pricing decisions including competitive dynamics and including changes to our overall cost structure. Store costs include commodities, rent, labor and equipment, while packaging and distribution costs affect retail.” He added that commodity costs account for about 10% of its stores’ overall operating expenses.

Prices have retreated by a fifth since Aprils high as Guatemala and Costa Rica raised their production and as US inventories of unroasted beans jumped in May on an annual basis. However, analysts dont expect a further major decline due to the drought damage in top grower Brazil.

Howard Schultz, the companys chief executive officer, said that the market has overreacted to the weather in Brazil and he is not concerned about the commoditys price. His company said it has secured all of its coffee needs through September and 40% of the next fiscal years requirements.

Starbucks Corp fell by 0.82% on Friday to close the session at $76.60, marking a one-year change of +17.45%. The coffee-shop operator is valued at $57.66 billion. According to CNN Money, the 23 analysts offering 12-month price forecasts for Starbucks Corp have a median target of $90.00, with a high estimate of $98.00 and a low estimate of $77.00. The median estimate represents a +17.49% increase from the last price of $76.60