Tuesday, August 26, 2008

Coffee Breakout - Off to the Races?

Note: This article has been published by Seeking Alpha.

Coffee futures are not my favorite to trade. They're so volatile that it's tough to distinguish a true breakout from noise.

Hopefully for me (I went long the Dec contract today), this move has more legs than the head fake from June:

Taking a step back, the long-term trend for coffee is up, up, up:

Long-term fundamentals are very favorable for long positions. The world continues to increasingly caffeinate itself with coffee, driven by - you guessed it - China and the rest of East Asia. A small but growing coffee market continues to gain ground on tea, the traditional caffeinated drink of choice.

On the supply side, most of the world's coffee comes from Brazil. So coffee supplies are heavily dependent on the quality of the Brazilian harvest, for better or for worse.

Coffee fundamentals are setup for us to see a super spike over the next 5 years. I firmly believe we'll see $2+ coffee at some point. And coffee has not yet had a major run up, like many of the other agricultural commodities - it's certainly due.

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