That cup of coffee is likely to get pricier in the near future as one of the worst ever El Nino weather phenomenon tears across the globe, wreaking havoc on crop yields.
With coffee, cocoa and dairy yields expected to be impacted by the weather event, higher input costs could hit companies like Starbucks, Keurig Green Mountain, Dunkin' Brands Group and J.M. Smucker, Goldman Sachs said in a note Thursday.
The impact is likely to be delayed due to hedging and will vary across companies.
Starbucks is best positioned to weather the event as it has pricing power while Keurig Green Mountain faces risk from heightened competition in the single-serve coffee market, Goldman Sachs said.
"We believe unit economics at Starbucks should be protected by top-line momentum, incremental pricing power, and existing coffee hedges in place," wrote analysts.
The bank has a Buy call on Starbucks and Neutral call for the other three companies.
Coffee, alongside cocoa, are two commodities that are likely to see further price gains from the weather phenomenon.
Singapore-based commodities trader Olam International last week said that coffee and cocoa are both undervalued as supply is falling short of global demand.
Coffee yields in particular suffered from a world production deficit last year due to a drought in world largest producer Brazil last year.
Coffee prices are down more than 30 percent year-to-date due to the slump in the Brazilian real after rallying over 50 percent in 2014 on supply concerns. A cheaper real spurred Brazilian coffee exports, boosting supply.
According to the International Coffee Organization, an inter-government group, 1.42 million bags of coffee were produced in 2014 against global consumption of 149 million bags of coffee. One bag of coffee is 60 kg.
"If you have some money to invest, probably you should invest in coffee. I would think that over the next 12 months coffee will be the best performer from a returns point of view," said Olam chief executive, Sunny Verghese.
Cocoa—a geopolitically sensitive crop as two thirds of the global crop is produced in West Africa—is also "undervalued" said Verghese. Olam, one of the world's top cocoa processors, said El Nino is causing "a major impact" on crops in top producers Ivory Coast and Ghana.
ICE cocoa futures in London are now at four year highs due to concerns about yields from dry weather in Africa. Parched conditions in the other major cocoa producing region of Southeast Asia will also affect harvests.
"We think that there is more upside (to prices) as a result of how the crops are developing in the key producing countries and the potential impact of a strengthening El Nino," added Verghese.
Still, battered soft commodity prices are unlikely to see a sustained rally due high stockpiles and alternative supply sources, said Goldman Sachs.
Despite contributing to one of the worst cases of pollution in recent Southeast Asian history, dry weather in the major palm oil producing countries of Indonesia and Malaysia will likely have a limited impact on prices even if yields are hit.
Palm oil prices are weighed by high stockpiles and weak palm-blend biodiesel take-up in the two countries due to depressed fossil fuel prices. The supply of substitute soybean oil is also likely to be ample as El Nino brings rains to major soybean producer South America, further helping yields after several years of bumper harvests.
New Zealand dairy production will also be hit by El Nino as grass growth is impacted although increasing supplies from the European Union will help offset supply loss, Goldman said.