Starbucks Reduces Hedging Program Despite Rising Coffee Prices

Starbucks has raised concerns that it may be unexpectedly exposed to market fluctuations by reducing its hedging measures against shocks in coffee prices, even as coffee bean prices rise. According to its newly published annual report, the world's largest coffee chain had less than $200 million in fixed-price contracts for green or unroasted coffee at the end of its financial year in September. In 2019, this figure was $1 billion.

The decline occurred during a period when roasters are facing a supply shortage due to consistently weak crops from major exporters like Brazil. Benchmark coffee futures rose above $3 per pound in New York on Friday, reaching a 13-year high, marking an increase of more than 70% over the past 12 months.

Starbucks purchases 3% of the world's coffee to supply its 40,000 cafes and retail locations. Gregory Francfort, an analyst at Guggenheim Securities, stated, "They are much less hedged than they used to be. This makes coffee prices over the next 12 months more critical than ever."