If You Don Own Coffee, Fire Your Broker Coffee Futures The Best Investment For 20092010
by Thomas Fazio,
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on the net: http://www.hobofinance.com
CHINA, Feb 04 — If it isn't clear by the title, I am bullish on Coffee. I have been bullish on Coffee for several years in fact but I wouldn't have urged you to fire your broker until now. The Coffee situation has progressed from long term bullish to an imminent crisis. News from South and Central America of a lack of quality beans in general and defaults on contracts in particular is starting to creep in
I
f it isn't clear by the title, I am bullish on Coffee. I have been bullish on Coffee for several years in fact but I wouldn't have urged you to fire your broker until now. The Coffee situation has progressed from long term bullish to an imminent crisis. We're on the cusp of the greatest demand driven bull run in coffee futures prices, which is why it makes my pick for best investment of 2009 and 2010.
I'm not your typical wishy washy investment writer. I won't give you worthless, half hearted, and non committal projections like "coffee may very well be the top investment for 2009" or "Coffee futures could climb 15% this year on production concerns". You know the kinds of articles I'm referring to. Exciting enough but lacking in substance. The time has finally come for action and I'm taking a stance. "We will look back on January of 2009 prices as being dirt cheap, and the first quarter of 2009 as the beginning of the greatest bull market in coffee...ever!"
Coffee has a unique story to tell. Ever since the 1997 spike in coffee futures prices to $3.50, coffee supply has grown tremendously. But so has demand. And since the earlier part of this decade the rate of change of worldwide consumption has exceeded the rate of change of production, forcing producing nations to sell from copious stocks into gradually rising prices. Slowly but surely this has resulted in the lowest coffee reserves in the hands of producers in 30 years, and the lowest stocks relative to consumption levels...wait for it...ever! Let's add to this the catalyst that will light a fire under coffee futures prices.
Coffee, as you may know, is a moody crop. Every other year producers turn out massive crops. Having expended their energy on these crops, coffee trees go through a season of smaller production the following year, resulting in a large vacillation in reserve numbers. One year they're added to because of a surplus, the following year drawn upon to meet a deficit. Well dear friends, 2009 will be a deficit year, somewhere to the tune of 10 million bags. This is a large deficit. Very large. And it comes at a time of historical tightness and steadily rising demand. But this is not new news. Why have futures prices not starting factoring in this deficit? Queue global financial crisis.
Coffee is the proverbial baby thrown out with the bathwater. While a host of other commodities had good reason to collapse in on themselves due to rapidly contracting worldwide demand and an all out fleeing of asset positions across the board, coffee was benefiting from increased at home use (because Starbucks was getting a little too pricy) encouraged by stress that accompanies a healthy fear of financial ruin and hard times to come. Demand has not slackened, and in fact looks to have increased over the last several months. Coffee is in high demand and there isn't enough of it. It's been sucked dry through panic selling and now is going for fire sale prices that will not last another two months. News from South and Central America of a lack of quality beans in general and defaults on contracts in particular is starting to creep in. The market technicals show clear signs of a bottom in place, and the start of a new upward trend.
Keep your eyes on this market and for God's sake, if you don't own coffee yet, fire your broker!
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