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Starbucks doesn’t believe in coffee shortages despite Brazil's drought

Starbucks doesn’t believe in coffee shortages despite Brazil's drought

Posted by Laura Zúñiga on October 31, 2014

Starbucks Corp , the world's biggest coffee chain, sees no supply shortages in beans, even as drought and disease hinder crops in Latin America and prices remain near 2012 highs.

Starbucks still needs to buy one-third of its coffee needs for 2015, Chief Financial Officer Scott Maw told analysts on a conference call about fourth-quarter and full-year 2014 earnings.

"We see nothing in current supply dynamics that indicates a fundamental market shortage, including origin-related concerns in Brazil," Maw said.

An unprecedented drought early this year reduced the current 2014/15 crop in the world's biggest coffee producer Brazil. This situation made arabica coffee trading wildly volatile on ICE Futures U.S., with the price nearly doubling within three months to a 26-month peak in April. Continued dryness there during the following flowering season for the next crop sent prices soaring again in September to $2.2550 per lb, the highest since January 2012.

The drought caused the International Coffee Organization to forecast in September that global coffee production will fall short of demand, with an arabica coffee deficit around 4 to 5 million 60-kg bags.

"We have largely stayed out of the market this year when the coffee prices have spiked, and we will continue to be patient as we lock in the final one-third of our needs in 2015," Maw said.

Coffee represents roughly 10 percent of Starbucks' total costs.

"We do not expect coffee prices to impact our current EPS (earnings per share) target for 2015," Maw said.

Starbucks' early re-launch of its popular Pumpkin Spice latte drink failed to heat up business at its U.S. cafes, disappointing Wall Street and sending the company's shares down almost 5 percent.

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