Shares of retail coffee chain Starbucks (SBUX) are down as the price of Arabica coffee beans hits an all-time high above $4 per pound.
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Concern over global supplies has led Arabica coffee bean prices to double in the last 12 months. Arabica coffee beans are currently trading in New York at $3.98 per pound, having pulled back slightly after rising above $4 a pound for the first time.
Commodities analysts see more increases ahead as worries grow about the available supply. Fears have gripped markets about the future output of coffee beans in top producer Brazil after a prolonged drought in that country. There are also worries about the coffee crop in Vietnam, the largest producer of the cheaper Robusta coffee bean, after fields were hit by damaging weather.
Commodity Price Problems
A shortage has led local farmers in Brazil to sell most of their Arabica coffee bean crop already this year, leaving questions over how much will be left to ship in coming months. The rise in prices is filtering down to consumers who are paying increasingly high prices for coffee brewed at retail outlets such as Starbucks and Tim Hortons of Canada (TSE:QSR).
Analysts say they are already seeing a decline in coffee consumption amid emerging economies, and that is likely to also occur in wealthier nations moving forward. The U.S. Department of Agriculture recently forecast that global stockpiles of coffee beans, both Arabica and Robusta, are likely to fall to a 25-year low this year, leading to higher prices globally.
Coffee beans aren’t the only commodity wreaking havoc on publicly traded companies. Hershey Co. (HSY) and Mondelez International (MDLZ) each issued soft forward guidance recently, citing the ongoing impacts of record prices for cocoa, the main ingredient in chocolate. Cocoa crops have also been damaged by adverse weather.
SBUX stock has gained 20% over the last 12 months.
Is SBUX Stock a Buy?
The stock of Starbucks has a consensus Moderate Buy rating among 22 Wall Street analysts. That rating is based on 15 Buy, five Hold, and two Sell recommendations issued in the last three months. The average SBUX price target of $109.10 implies 2.50% downside risk from current levels.
