• by Thom Forbes , August 17, 2011

In the silver-lining department, at least you can better afford to be wide awake as the economy tanks, the political system grinds to a halt and global warming does a number on an already inadequate global food supply. J.M. Smucker Co. yesterday announced that it was lowering prices on Folgers and Dunkin' Donuts brand coffee by an average of 6%.

The big question, of course, is will we have a Coffee Price War to entertain us for a spell? But back to basics for a moment.

If you're like me, you're wondering when Smucker got into the retail coffee business big time in the first place. 2008, it turns out, when it paid about $3 billion to acquire The Folgers Coffee Co., a subsidiary of Procter & Gamble. It sells the Dunkin' Donuts brands to supermarkets and retailers under a licensing agreement with the Canton, Mass.-based eatery chain. Bottom line: Smucker got 40% of its revenues from coffee last year, and it represents most of its recent growth.

Yesterday's announcement reverses a steady upward trend in coffee prices. Smucker itself had recently raised prices a total of 23% on four separate occasions, as Miriam Reimer reports in The Street, including an 11% bump just two months ago, when it blamed "significantly higher" green coffee prices. Yesterday it cited the drop in coffee futures as the impetus for the move.

Coffee futures hit a 34-year high of $3.0615 per pound on May 3 but have come down since then, with September contracts most recently trading at $2.4525, Reimer reports. Brazil's recent harvest was reportedly robust.

The Wall Street Journal's Paul Ziobro and Leslie Josephs point out that Smucker tends to buy green coffee beans in 18- to 22-week intervals, as president Vincent Byrd revealed on the company's June earnings call. That's a shorter time frame than at other producers, allowing it to adjust prices faster -- up or down -- based on costs. When other Latin American farmers start their harvests in coming months, prices could drop even more.

Despite the rising prices, consumption of plain old coffee continues to rise, at least outside the home, as Marketing Daily's Karlene Lukovitz reports in "Standard Hot Coffee, Tea Still Rule In Restaurants" below.

John Wordock and Ann Cates chat about the likelihood of competitors also cutting prices in Red, White and Blue Chips. "It may put pressure on other people" such as Kraft and Starbucks, Cates says. "There could be an implication here, hopefully," Wordock responds, with his eye cocked toward what Starbucks will do. They also mention that Smucker's release about the move went out of its way to point out that coffee prices at Dunkin' Donuts restaurants will not be affected.

Starbucks CEO Howard Schultz told CNBC that it has locked in its coffee inventory through 2012 but it will "look at cutting prices on some items and will rely on its loyalty program to offer customers deals," Ziobro and Josephs report. Last December, he pointed his finger at financial speculators for the run-up in prices. John Culver, president of Starbucks Coffee International, subsequently predicted that prices would come down, Reimer reported in May.

"Too much coffee, not enough drinking," PFGBEST commodity analyst Robin Rosenberg tells the Los Angeles Times's Tiffany Hsu. "There's plenty of coffee around. The pressure's come off the market." She and other reporters on the java beat were not able to pry comments about the price cut out of Smucker's competitors, however. Consumers were not so reticent.

"Just to save a few bucks would be nice," 20-something social media specialist Jason Gerdon tells her. "Just to see that prices aren't being jacked up for everything." And who could be more representative of the coffee-drinking public than a 20-something social media specialist, outside of a cop on the beat?

Perhaps we all better enjoy it when we can. Writing in the Toronto Star, Josh Rubin reports that "global warming could deliver a jolt to coffee lovers." The Global Coffee Quality Research Initiative estimates that up to 60 % of the world's coffee-growing regions will no longer be viable by 2050 due to climate change, leading Trillium Asset Management researcher Jonas Kron to suggest that there may be "a major financial risk for companies who count on coffee for their profits," Rubin reports.

"I'm not prone to hyperbole, but climate change is going to be the biggest financial issue for the next generation," Kron tells Rubin.

That's grounds for another cup of joe, I'd say.