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Smucker lifts coffee prices - for first time since 2014 'misstep'

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JM Smucker, citing "sustained" rises in bean costs, raised prices of its coffee brands for the first time since a hike two years ago, which the group later acknowledged as a "misstep".

JM Smucker said it had on Wednesday raised by an average of 6% prices for most of its coffee portfolio, including iconic names such as Café Bustelo and Folgers.

The increase had come "in response to sustained increases in green coffee costs", with London robusta coffee futures trading at $2,172 a tonne on a spot contract, close to a two-year high, supported by a dent to supplies from dry weather in Vietnam and parts of Brazil, the top two producers of the variety.

New York-traded arabica coffee futures for March on Wednesday crossed back above 150 cents a pound, taking gains in 2017 nearly to 10%, although remaining comfortably below the 22-month high of 176.00 cents a pound hit in November.

'Sticker shock'

Smucker's price increase is the first for the brands since an increase averaging 9% In June 2014, which actually raised the price of a benchmark can of Folgers from $6.99 to $8.99, and prompted a sharp drop in sales.

Mark Smucker, the JM Smucker chief executive said in November 2014 that "clearly, we do feel that it was a bit of a misstep.

The "significant jump" in prices meant "the consumer did sort of experience some sticker shock".

However, the group, which cut its coffee prices by 6% in July 2015, and by a further 6% last May, has said it has "learned a lot" from the fallout of its 2014 price hike.

"If there is pricing in coffee we think it will be much more measured," Steve Oakland, vice-chair at the group's US food and beverage division told investors two months ago

Price cushion

Wednesday's price increase suggests that the company has lost some of the comfort of forward hedging, at lower prices, which allowed it to maintain prices eight months ago even as futures were amid their advance to their November high.

Mr Smucker said two months ago that while prices of "both arabica and robusta futures increased further lately… we continue to recognise lower green coffee costs".

He added that "while we do not disclose our hedged position, we remain confident in our ability to adjust pricing when warranted".

Smucker shares rose 0.5% to $129.42 in early deals in New York.

By Mike Verdin

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