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Fast Money

Hot Trade, Coffee


If you’re a coffee drinker you might have to dig a little deeper into your wallet to pay for that next bag of beans.

The price of coffee futures hit a seven month high this month, driven by weather problems, high labor costs, the price of fertilizer and strong demand.

According to the International Coffee Organization, or ICO a shortfall of around 2.5 million bags of Colombian milds pushed prices of that bean up in April --  to their highest monthly average since February 1998.

And those costs typically get passed along.

Maxwell House coffee brand owner Kraft increased the price of its Colombian blend by almost 19% last month and Jose Sette, head of operations at the International Coffee Organisation (ICO), said it is possible others will follow suit.

"There comes a point when they can no longer keep delaying," he said. "It is hard to know when the other roasters will take their pricing decisions."

Hot Trade: Coffee

What’s the trade?

McDonald’s and Starbucks both rely on coffee, explains Pete Najarian. But the price increases probably impact the firms very differently.

I can’t help but worry how Starbucks will manage the price increases, he says. McDonald’s however uses coffee as a loss leader – to get people in the door. It probably won’t have much impact there.

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Trader disclosure: On May 20th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (AGU), (F), (SKF), (SDS); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Terranova Owns (ABT), (TER), (JOYG), (XBI), (X), (HES); Terranova Owns Oil Futures;p Terranova Owns Nat Gas Futures; Terranova Owns (DIS) Calls; Terranova Owns (XOM) Calls; Terranova Owns June Gold Futures; Najarian Owns (ISIS); Najarian Owns (APC) Call Spread; Najarian Owns (BBY) Put Spread; Najarian Owns (BX) Calls; Najarian Owns (INTC) Calls; Najarian Owns (MOS) Call Spread; Najarian OWns (XHB) Call Spread; Najarian Owns (XLB) Call Spread; Najarian Owns (XLU) Call Spread; Najarian Owns (PCU) Calls