Coffee manufacturers do a bet on low prices

The change of some coffee production companies for their strategy to hedge against price fluctuations has led consumers to be loaded with extra liabilities after these businesses bet on the decline in prices, but reality has violated their expectations. Compacks Corp and Starbucks Corp relied on the futures market to protect itself from price fluctuations. But that changed its strategy last year, which is expected to get better prices later. However, the shortage of supplies continued, and prices continued to rise, which led to these businesses increasing the prices of their products. Currently, one of the indicators that measures the amount of hedging by buyers has dropped to the lowest level in more than 11 years, referring to the weakness of the dependence on companies of preventative instruments. Coffee companies are expected to transfer the high cost to consumers, although coffee prices are already standard levels. According to the US Office of the Labor Statistics Office, the average price of ground coffee pound in February was $ 7.25, which is the highest level ever registered. Increased coffee prices, Rafael Olivira, CEO of JDE Peet ‘, confirmed that “the big price increases are inevitable” during a call with investors to discuss the results of profits in February. In the same context, Starbucks, Starbucks, said in January that the products sold in large stores would be affected by ‘clearer’ than other sectors of the company. Both Olivira and Rogeri indicated that high prices could lead to a decline in retail sales. Coffee prices rose to a record level early this year to a drought that harmed crops in Brazil, the largest producer in the world. This shortage of supply has led the market to be known in a state as ‘backward’, as contracts are closest to the highest price than those later earned, which has largely expensive retention of raw coffee stalls. As a result, coffee companies bought in very small quantities and at the last minute, in the so -called ‘production for consumers’ immediately. At the same time, clients who face liquidity have problems with the financing of grain shatters from production areas to consumer areas. “Production companies are suffering, some of which can currently work at less than the price of raw materials, and even less than the full operating costs,” says Thiago Kazarini, a broker in the Minas Gerais region, the largest coffee planting area in Brazil. In terms of small and medium braai businesses, they are still far from the futures market. Gregorys Coffee, based in New York and has more than 50 branches in the United States, was previously dependent on futures contracts to install the prices of most types of coffee you buy. But in light of the high prices and the current market composition, CEO Gregory Zammvitis said: “Most of our businesses do not see a good opportunity to hedge.” In the same context, Thomas Araojo, a trader in ‘Stonex Group Inc.’, showed that coffee companies wait for prices to fall before resuming the fences, but added: “The problem is that I’m not really sure we will reach this situation.”