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Will Fungus Send Coffee Prices Higher?

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At least some packagers are cutting retail prices, if not your local Starbucks. However, a coffee-killing fungus outbreak could revive climbing prices later this year.

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Here's some more news to keep you awake at night: It looks like coffee prices might go through a mood swing of sorts as the year progresses.

A global shortage of coffee beans sent prices in the US percolating up to around $3 per pound in 2011. But since that peak, coffee prices have yet to stop falling. According to Brian Murphy at the Small Cap Network, it's currently trading at around $1.40 per pound.

The price drop is being attributed partly to several recent record coffee crops in Brazil, which produces about a third of the world's coffee. Reuters reports that Arabica beans, the type used mostly in brewed blends, have fallen to their lowest levels in two-and-a-half years.

In fact, J.M. Smucker (NYSE:SJM), which produces the Folgers and Dunkin' Donuts coffee brands, announced on Tuesday it was decreasing the price of most of its packaged coffee products sold in the US by an average of 6%, "in response to sustained declines in green coffee costs."

Other coffee sellers are expected to follow suit -- although Kraft Foods (NASDAQ:KRFT), which makes Maxwell House coffee, told Reuters it has "no news to share at this time" about any possible changes to its coffee prices.

But lower retail prices probably won't effect the price of your morning cup at Starbucks (NASDAQ:SBUX), Caribou Coffee (NASDAQ:CBOU), or other coffee shops and restaurants. Brian Murphy says that's because coffee companies are like gas stations. "Once you become accustomed to a higher price," he notes, "they never quite lower it back to prior low levels...even if the underlying commodity (like gas, coffee, or whatever) does fall back to prior lows."

In the meantime, the Wall Street Journal quotes coffee sector analysts as forecasting that oversupply is going to keep prices dropping for at least the first half of 2013. But a wild card is also at play -- a bean-destroying fungus that's reportedly spreading across another important coffee-growing region, Central America.

Honduras, Guatemala, and Costa Rica are all expecting significant drops in coffee production due to the disease. And those reductions could be felt market-wide by October, when the next coffee season starts.

Editor's Note: This story by Bruce Kennedy was originally published on MSN moneyNOW.

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