Coffee prices climbing, gasoline prices on the way down

Before you go, we thought you'd like these...
Before you go close icon
Civet eating coffee cherryThe fuel that gets your body moving in the morning, coffee, could be on its way up in price, thanks to a worldwide shortage. The fuel that runs your car, however, could be on the way down, thanks to a nationwide glut.

Coffee growers in Colombia, where much of the higher-quality beans come from, have been hit by bad weather and a fungus that is damaging plants, resulting in back-to-back bad harvests and the prospect of another to come. Since Colombia is the third largest exporter, the result is a sharp climb in the coffee bean market. Arabica bean futures for December delivery areselling at $1.94 a pound, up from around $1.40 in June.

According to CNN Money, J.M. Smucker (Folgers, Dunkin' Donuts and Millstone) has already increased shelf prices by 10%, while Kraft (Yuban, Maxwell House) raised its prices by 9%.

Will you see an increase in prices at McDonald's or Starbucks? Let's do the math. There are roughly 44 tablespoons of coffee in a pound; I use two tablespoons to brew a strong cup via a French press. If I buy a pound of Starbucks House Blend online for $10, I'm paying roughly 45 cents retail for a cup of coffee.

Since Starbucks pays something less than retail for the coffee it uses in its stores, it's reasonable to conclude that the actual cost for the coffee in a $1.95 cup of its coffee represents only 15% or so of the cost. Therefore, a large change in the price of the beans shouldn't affect the cost of delivering a cup to me in a coffee shop by more than a few cents.

I expect most coffee shops will eat the extra expense, at least in the short run.

While coffee is growing scarce, gasoline is in abundant supply. According to the Wall Street Journal (subscription required) storage facilities are bursting at the seams, and crude oil prices remain low.

The main reason for the glut? We didn't drive as much during the peak vacation season as we usually do. This resulted in the largest late-summer stockpile of gasoline in 23 years. According to the Energy Information Administration, this should mean a drop in gas prices in the near future, to perhaps $2.65 in October and November. Today the national average stands at $2.682, still up 9.4 cents over 2009.

The glut is not forever, however, and the EIA projects gasoline will climb again in 2011 to $2.897. At least we aren't looking at the return of $4 gas.

If we're lucky, gas will go down enough to cover the cost of our morning cup of java.
Read Full Story
Credit Card Compare

Credit Card Compare

Whether you're looking for great travel rewards or low annual fees, find the card that's right for you.

Compare Now

From Our Partners