Coffee roasters who were banking on a drop in prices decided against hedging. This choice is now leading to an increase in costs for consumers. Normally, companies use the futures market to guard against price changes, but when prices began to rise, they bet on securing better deals later on. However, supply shortages continued, causing prices to rise, forcing companies like JDE Peet’s NV and Starbucks Corp. to raise prices. As a result, consumers are facing the highest coffee prices ever, with an average of $7.25 per pound as of February.

Due to this market situation, roasters are expected to pass their elevated costs on to consumers. Coffee prices hit record highs this year due to a drought in Brazil, the top producer. The market is now in backwardation, making it costly to hold inventory, leading roasters to operate on a hand-to-mouth basis. Traders are struggling to finance bean transport, exacerbating the situation.

Executives from companies like JDE Peet’s NV and Starbucks have acknowledged that significant price hikes are unavoidable. They anticipate decreased retail sales volumes due to the higher prices. While larger roasters are feeling the pressure, smaller to mid-size roasters are staying away from the futures market due to the current market dynamics and high prices. For example, Gregorys Coffee, a New York-based company, has shifted away from using futures to lock in coffee prices, as they no longer see it as a viable hedge.