Remember last year, when coffee prices were spiking and everyone from Dunkin Donuts to Starbucks was raising their prices? Well, coffee prices are moving in the other direction now.
Part of the reason is that a drought in Brazil, though by no means over, has eased a bit with some recent rain in the key southeast and center-west regions. More rain means more production, which means more supply, which means lower prices.
Another reason for the decline: the much-discussed strong dollar—buoyed by US economic growth and relative economic weakness elsewhere—is putting on damper on commodities the world over.
Capital Economics, in a note to clients, framed it thusly: If you have to buy something in US dollars, but your customers make their money in a currency that doesn’t go as far against the dollar as it used to, it’s going to be hard to sell your wares without lowering prices to keep folks coming through the door.
“The obvious point is that global commodity prices are usually quoted in dollars and therefore likely to fall, other things being equal, when the US currency is strong,” its analysts wrote.