Kraft's Maxwell House Cuts Coffee Price

Kraft Foods Inc. (KFT) has cut the list price for its leading coffee brand Maxwell House (search), becoming the second major U.S. roaster this week to respond to falling costs and prices in the commodities market.

"Effective yesterday, we announced a list price decline on our Maxwell House coffee. It's the lower commodity costs for green coffee," Pat Riso, a Kraft spokeswoman, told Reuters on Friday.

Kraft reduced the price it sells to supermarkets and store chains by 13 cents per 13-ounce equivalent can, following a 5-percent reduction in the list price for the Folgers coffee brand announced by Procter & Gamble Co. (PG). After the P&G move, analysts said they were expecting the other big roasters such as Kraft and Sara Lee Corp. (SLE), which carries the Chock full o'Nuts brand, to follow suit.

Despite more and more Americans consuming coffee, the benchmark price of the washed-arabica bean trading on the New York Board of Trade (search) has recently fallen about 33 percent since peaking at its highest level in more than five years in March.

The NYBOT's front-month arabica contract for September delivery hit an 8-month low of 96.15 cents a lb on July 19, well below the peak of $1.4425 per lb scaled on March 11.

September arabica futures were trading at $1.0580 a lb Friday morning.

Roasters like Kraft and P&G use the front-month futures contract on NYBOT as a benchmark to set their prices, and the 13-ounce equivalent can is a measure for setting prices for shipments of various sizes to supermarkets and store chains.

In July, the International Coffee Organization (search) forecast the global coffee harvest would shrink 5 percent to 105 million 60-kg bags in the 2005/06 season because of lower output in such key production countries as Brazil, Vietnam and Indonesia.

Recent estimates of world consumption indicated a total of 114.4 million bags for calendar year 2004, up from 111.8 million bags in 2003, it said.

In a recent survey, the National Coffee Association of USA (search) said that U.S. daily consumption of coffee rose to 53 percent of the population from 49 percent in its 2004 survey. NCA attributed that increase to a surge in coffee drinkers who are 18 to 24 years of age.

However, futures prices have been vulnerable to managed-money funds which held positions as a hedge against financial markets.