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National Restaurant Association - Coffee surplus, lower prices a perk for operators

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Coffee surplus, lower prices a perk for operators

As restaurateurs continue to struggle with higher food costs, a silver lining of sorts has emerged by way of Brazil: a record-large coffee crop this year has resulted in decreased prices, commodities expert John Barone said.

Barone, CEO of Fairfield, N.J.-based consultancy MarketVision Inc., said the large harvest of Arabica beans represents the first global supply surplus in five years.

"This is one of the few markets where prices have dropped substantially over the last two months," he said. "The International Coffee Organization has put world production this year at 147 million bags, up 9.3 percent from a year ago. That, plus a decline in consumption in Europe due to the recession there, has led to the lower prices. Coffee futures prices were around $1.83 per pound on Oct. 3 and are now $1.37 per pound. That's a drop of 46 cents per pound, or 25 percent."

So what does this mean for foodservice operators? Barone said the coffee surplus would be good to the last drop.

"In what's been a very bad food cost year for the industry this year - and what's looking to be a very bad food cost year next year, coffee is a little diamond in the rough," he said.

Barone added, however, that next year's coffee crop is expected to be smaller, "which is usually what happens after a surplus," and that prices would remain lower as long as the surplus lasts and before a mild tightening occurs next year. He also noted that operators who have not yet locked in their coffee contracts still have time to negotiate good deals before year end.

"There's an opportunity right now to look at a price in the mid-$1.50 per pound range for next year, versus $1.76 this year and $2.53 per pound in 2011," he noted. "That's significant progress, particularly if you sell coffee for a living."

Starbucks, during a Nov. 1 conference call with analysts on its fourth-quarter and 2012 fiscal year performance, said it expects to save $100 million this year because of "favorable commodities costs," Bloomberg Businessweek reported.

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