Peet's says back in market for coffee beans

CHICAGO (Reuters) - Peet's Coffee & Tea Inc (PEET.O: Quote, Profile, Research, Stock Buzz) Chief Executive Patrick O'Dea on Tuesday said the premium coffee seller is back in the market for beans as prices have fallen from last month's record highs.

"Our view is that coffee at $1.60 (per pound) was overpriced," O'Dea said at the Reuters Food Summit in Chicago.

Peet's had 70 percent of its 2008 coffee supply contracted coming into the year, he said.

"We had been on the sidelines for the other 30 percent up until yesterday, because we thought the market was just overpriced," O'Dea said.

The May arabica coffee futures contract, the current benchmark contract, rallied to a 10-year high at $1.719 per pound on February 29. The market has since eased, however, and a flurry of fund selling on Monday took the contract to a seven-week low at $1.36 per pound, down more than 20 percent from the recent 10-year peak.

The key contract settled at $1.3755 per pound Tuesday.

Peet's buys its beans directly from growers at prices that the company says are substantially higher than those in the coffee spot market. The company uses either fixed-price contracts or agrees to pay a certain differential above the market price.

Peet's, which operates 174 cafes in the United States, gets 70 percent of its profits from its business that sells coffee at grocery stores.

The company is on the premium end of the coffee market and its prices are higher than other specialty coffee sellers, including Starbucks Corp (SBUX.O: Quote, Profile, Research, Stock Buzz), whether it's a finished drink or a bag of coffee.  Continued...