Here's a tip for coffee investors – consider betting the
opposite way on prices to the way JM Smucker prices are going.
The snacks group revealed the first rise in coffee prices in
three years, citing strong bean costs – even as the rally in futures entered a
Indeed, the Ohio-based group, known in coffee for the Folgers
and Dunkin' Donuts brands, continued something of a theme of being a contrarian
indicator for coffee prices, short-term.
in coffee costs'
JM Smucker said that it had raised the price of most of its
products in the segment by 9% "in response to sustained increases in green
The price increase, which excludes the K-Cup capsules, is the
first since May 2011, since when SM Smucker has cut coffee prices three times.
However, global coffee markets have soared this year, with
New York arabica bean futures hitting 207.55 cents a pound in March, the highest
since February 2012.
Futures stood at 136.50 cents a pound in February 2013, at
the time of JM Smucker's last price decrease.
But, ironically, Tuesday's price rise came as a retreat in
futures from their March high dragged them into a bear market, with their fall
topping the 20% mark typically seen as defining such a decline.
At 168.85 cents a pound for July delivery, down 2.0% on the
day, arabica coffee futures are down 22% from their peak.
The drop has been attributed to a series of less gloomy estimates
on Brazil's losses to an early 2014 drought, with trader Mercon, for instance,
last week pegging output at 50.5m bags, some 10m bags above the
"We were pleasantly surprised on the general aspect of the
trees and how they had recovered compared with the previous trips during the
year," Mercon said, following crop tours.
Interagricola, affiliated to soft commodities trader Ecom, has
pegged the crop at more than 51m bags.
At Citigroup, analyst Sterling Smith said that JM Smucker's
move could be hastening the drop in coffee prices, saying that the price rise,
which stands to curtail demand, "may be adding to a little to the bearish
That would extend something of a theme of the snacks group
proving a contrarian indicator, with last February's price cut heralding a rise
of some 5% in arabica coffee futures over the following three sessions.
While the previous price drop, in May 2012, preceded only a
small rise in arabica coffee futures, of 0.9% in two sessions, the cut before
that in mid-August 2011 would have been a highly profitable signal for the
Prices rose more than 15% over the next 12 sessions.
Still, there is some expectation that the fall in prices
this time might not prove sustained, with Mr Smith saying that "as long as the
market holds the 167.00 cents-a-pound area on a closing basis, fund liquidation
en masse should not be the case".
"Ideas that late season rains did in fact improve the crop
is questionable," he said, estimating Brazilian production "in the sub-45m bag