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A Rising Tide for Agricultural Commodities

Stocks in this article: HSY K MCD KFT SLE SBUX SJM PEP

Coffee

Christian of CPM Group said he thinks coffee will tread between $2.45 and $2.60 a pound over the next week or so amid supply concerns and large long positions by investors.

Recently there's been some supply concerns in Guatemala, the largest producer in central America, and Brazil. "Some Brazilian producers appear to be withholding some of their crop in the expectation of some higher prices," he said.

Christian said there's also been investors adding to their long positions on the Comex commodity exchange, which "going forward, cuts both ways." Christian explained that this inflow of money is, on the one hand, driving up prices. On the other hand, if investors believe that the prices have already peaked, they can dump their positions and the price could level off.

"But right now they have a relatively large long position and that could help keep the price up for a while. We don't necessarily see it moving sharply higher in the near term," Christian said. "But basically staying high."

Christian noted that there's been a drive to encourage the consumption of chilled coffee drinks, as coffee producers try to drive away the seasonality associated with coffee demand.

Coffee prices rose 1.8% month over month or 86% year over year in January, according to Jonathan Feeney of Janney Capital Markets.

PFGBEST's analyst Robin Rosenberg noted in a weekly report that results from the latest coffee harvest were "extremely good" to "just a shade above expectations."

The weaker harvests were a results of poor growing weather in some of the coffee growing regions, according to Rosenberg. The strategist said that Cameroon's Arabica coffee exports between Oct. and Dec. 2011 were 18 metric tons, unchanged from a year ago. And in Uganda, January coffee exports dropped to 215,180-sixty kilogram bags, 18% lower from a year ago. Uganda's February coffee exports were expected to fall by at least 30%, he said.

"Quality issues are beginning to show their face and have cash market participants paying premium prices for high quality coffee beans," Rosenberg added. Meanwhile, "a strike by Colombian truckers continues. If they do not settle over the next few weeks, coffee in storage could begin to deteriorate," the strategist warned.

In August of last year Kraft (KFT) raised prices on select products from its Maxwell House and Yuban ground coffee brands by more than 10%. It also raised prices on its instant coffee products.

In December, Kraft raised prices again -- by about 12% -- on its roast and ground coffee products under the Maxwell House and Yuban brands. Northfield, Ill.-based Kraft Foods, through its subsidiaries, manufactures and markets packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products.

In December, the CEO of Seattle-based coffee company Starbucks (SBUX), Howard Schultz, called the 50% spike in coffee futures "tragic," blaming financial speculators for the run-up in prices.

In its fiscal second-quarter earnings report in November, Orrville, Ohio-based branded food products company J.M. Smucker (SJM) said "escalating commodity costs will continue to present challenges." On Feb. 8, Smucker said it raised retail prices for most of its coffee products -- particularly those under the Folgers and Dunkin' Donuts brands -- by about 10%, following two price increases in 2010, as unroasted bean prices continued to rise.

Downers Grove, Ill.-based packaged foods company Sara Lee (SLE) said higher food costs led the company to miss fiscal-second quarter earnings expectations. It said commodity costs increased by $127 million last quarter, and by $219 million in the first half of its fiscal year.

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