Sunday, February 08, 2009

Coffee Perking Up? - Weekly Commodities Review

Coffee Perking Up?

Long-time readers know that we've been quite bullish on coffee for some time in this space. So on Friday, when I received an email from my commodity broker, Robert, about possibly initiating a coffee position, I was extremely intrigued.

We wrote this article about coffee for Seeking Alpha last August.

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 set up 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 - so it's certainly due.

As you can see from the long-term chart, coffee has been in a bull market since 2001 - due to many of the reasons we've discussed above:


Here are the near term factors that may spur an upcoming coffee rally:
  • Coffee consumption has a tendency to increase during recessions - consumption in coffee shops takes a hit, but people brew more at home
More bullish/bearish factors for coffee:
http://www.insidefutures.com/article/94842/Foods%20and%20Softs%20Outlook%20for%20February%206,%202009.html

In summary, expect demand to stay strong, and let's keep an eye on the supply picture for potential shortages. Anyone in Brazil care to share a weather report with us?


Stopped Out of Soybeans - Corn Flat

We were stopped out of our two mini-soybeans positions mid-week. Beans rallied to finish the week, as did corn and wheat.

I like the double-bottom formed by corn this week. Had our stop in at 350 and it held.

Looking at this chart - wow, if this isn't a classic Fibonacci Retracement - gaining back 50-62.5% of the previous move down. If anyone knows how to identify the bottom in real-time, let us know!


Open positions

Date Position Qty Month/Yr Contract Entry Price Last Price Profit/Loss
01/16/09 Long 1 MAR 09 Corn 374 3/4 377 $112.50
01/20/09 Long 1 MAR 09 Corn 397 1/2 377 ($1,025.00)
12/31/08 Long 1 MAR 09 Cotton 48.52 49.80 $640.00
02/06/09 Long 1 MAY 09 Coffee 'C' 121.95 121.50 ($168.75)
Net Profit/Loss On Open Positions ($441.25)

Account Balances

Current Cash Balance $38,296.35
Open Trade Equity ($441.25)
Total Equity $37,855.10
Long Option Value $0.00
Short Option Value $0.00
Net Liquidating Value $37,855.10
---------------------------------------------
Cashed out: $20,000.00
Total value: $57,855.10
Weekly return: -2.5%
2009 YTD return: -25.5% :(

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

(Had to add these historical facts in to keep me from smashing my head into my keyboard).

***"Cash out" mostly means taxes, living expenses, and startup capital for our time management software company that was recently covered by the Sacramento Business Journal and Inc magazine.

2 comments:

joachin said...

Hey, we should find the coffee share in the retail sales report, do you know how can we get it? There may be some evidence for buying this moving averages-testing.

Brett Owens said...

I didn't see anything - if anyone has any ideas, please let us know.

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