Best Thread COFFEE - The next big bull?

[DaveT]

A very decisive breakout to new highs today - up over 600 points.

I added some July Longs near the lows of the day.

Objectives for these are weekly/monthly resistance levels :

1) 14500 Basis July
2) 15000 Basis July
3) 17400 Basis July

We are heading into clear blue sky on the daily and weekly (medium-term). It's good to be a participant in this undoubtably historic bull run.

Bgold - are you in yet - or still looking for a 'low-risk entry point'?' 😕

I wouldn't wait too long.

 

[thomasdevos]

Dave,

Credit goes completely to you here.

I have been in and out of Coffee from end of October after the breakout in the 90ish region, purely based on technicals and not on fundamentals.

I'm keeping a tight trailing stop loss as I can see from the charts there must be a correction due to the current overbought conditions.

I'm probaly not the only one here, but your regular update is very valuable. Thanks!

 

[DaveT]

Thanks for your comments Thomas 🙂


I see London is UP BIG again this morning - May Robusta is up 29 at $1000 /ton(at 11 am)

We have finally hit the magic $1000 mark in London (basis May). There is a growing sense of urgency regarding the London market - it is finally cathing up to New York.

Reasons?

1) Vietnam drought is biting hard - new sources say up to 44% of the Robusta crop may be affected/cut - The El Nino phenomenon is largely responsible. Vietnam produces nearly HALF of the world's Coffee

2) Continuing supply concerns/low stocks from Brazil (arabica)

3) Fund buying now SWAMPING both NY and London markets.


The final ingredient ( to make an historic Coffe spike in price) will be commercial short-covering. They must lift hedges soon.

To me, the market now 'feels' like it is beginning the acceleration phase (or one acceleration phase). I don't think it will be long before we see the phrase 'panic-buying' in the daily market reviews...

NY Open this afternoon could be VERY interesting. I eventually expect a couple of 15-20 cent UP days before the sesaonal May/June/July high.

 

[DaveT]

NY Coffee Monthly pointing straight up :

 

[DaveT]

Another day, another new high close.

This is doing wonders for my equity curve. 😎 I've been in since 9600 Basis May.

The weekly chart looks just fantastic. Looks like we are targeting 14500 and 15000 for starters...

 

[josbarr]

DJ Nybot Coffee Review: Races To More Than 5-Year High
NEW YORK (Dow Jones)--Arabica coffee futures rallied to the highest level
since December 1999 on the New York Board of Trade Thursday as funds and small
speculators bought while commercial shorts rushed for cover. The market's
strength continued to surprise many industry members, traders said.
Nybot options volume was heavy.

The Nybot May contract settled 635 points higher at $1.3810 a pound, and July
closed up 635 points at $1.4045.

"Commercials are short and they never thought that funds would be able to
hold onto, much less add to, their historic long position for this length of
time," said Rodrigo Costa, a broker with Fimat USA in New York. "Commercials,
dealers and exporters are struggling to meet margin calls in futures each day.
They have a cash flow problem that's making physical coffee tight.

"Also, there's a large exposure in the May $1.50 calls," he observed.

"Fundamentally, Vietnam's been dry over the last couple of months, which
should affect the size of the next crop," Costa said. "The Vietnamese harvest
that just finished was down about 20% on the year. I'm working with a forecast
of 34 million to 35 million bags for Brazil's next crop, which is above the
official estimate, but below some trade ideas of 38 million."

The May/July spread settled at 235 points May under, unchanged from
Wednesday.

Futures volume was estimated at 20,134 lots, and in options, 15,698 calls
and 3,599 puts traded.

The London robusta market and the Sao Paulo BM&F futures closed with
impressive gains.

 

[ducati998]

DaveT,
Well thought out thread, and you have/are doing exceptionally well with your position to date.
Intrestingly, the fundamentals have not been fully explored, although far more than I have seen on many other threads.

The Brazilian government has arranged to finance green coffee storage for the farmers who can then hold inventory rather than having to sell to raise cash.

This quote appears from one of the links contained in this thread.
It has I feel quite important implications, viz.......If the Brazillian government have created buffer stocks of their most valuable asset, export coffee, then the supply is far in excess of current estimates.

The question would be, when were these buffer stocks created?
What % of GDP does coffee revenue represent to the government of Brazil?
How to check?

The answer may well lie in an analysis of the composition of GDP growth and shrinkage.
Currently GDP is 5.3%, well in excess of growth elsewhere in the world. This is being driven by the price increase of coffee, with supply being metered out accordingly.

But that can only be short-term, for reality cannot be avoided in the long run. As we reported in the last bulletin, most estimates had placed likely production in the upcoming year at around 115-118 million 60 kilogram bags. But more recently we are seeing less optimistic figures, some as low as 107 million bags, only 66% of which is arabica coffee. World consumption is forecast at around 114 million bags, and that has helped fuel the speculation in this, the off-year for Brazilian production. A drop-off in world stocks already in storage this year as opposed to last has had an additional bullish impact. But with good weather in Brazil in the following year, with no frost and no drought, there is now projected a possible 50 million bags, a very bearish number.

Now, this is interesting in that you would expect producers, ie. farmers, to increase their production, with an allowance for weather exerting a speculative influence.
Rising prices, in a competitive market, mandate increased supply. This does not seem to be the case. In point of fact, the opposite, less growing would seem to be the reality. This suggests that the brazillian government has been following a buffer stock program for some period of time in excess of 3yrs, and thus has a supply of cheap LIFO coffee.

Because of its market share, an old saying goes, regarding prices, “Brazil rules.” The moment of truth may come with the advent of the Brazilian harvest beginning in May. Prices, while now relatively high when compared to the past few years, are still well below historic highs, so let’s hope for decent production numbers. With luck, the bubble could burst.

It would seem that Brazil enjoys a weak monopoly within coffee, and uses this position to manipulate prices.
From the previous quote however we can infer that the government is currently curtailing supply through a subsidy program. This in the longer term, assuming no competition enters the market place, will mandate higher prices being maintained.

This obviously is tremendously important to Brazil as this represents a US$ income that can service bonded debt, while concurrently providing a liquid reserve to support their own currency.

The commodity funds are buying heavily, creating a demand beyond the fundamentals, and shippers are holding back awaiting even higher prices. Money is being taken from other forms of investment and being poured into commodities.

You would have to conclude therefore that a % of the price of coffee is speculative. How much? As it would be difficult to second guess a government, there is no good answer. However, from a fundamental perspective, analysis cannot advance you any further. This would now be classed as a purely speculative operation, and thus managed as such.

cheers d998

 

[DaveT]

ducati -

You raise some interesting points.

I am first and foremaost a technical position/swing trader, but try to maintain a good awareness/understanding of the fundamental and economic situation in the particular commodity I'm trading.

Obviously the funds are in control of this markket, but are the commercials starting to capitulate (on their shorts)? The COT reports of the next 2 weeks should provide the answer.

In any runaway market a certain % of the price may be speculative (Soybeans last year?) - and speculatively speaking, money is POURING into commodities right now - look at the CRB index, at it's highest level since 1980 and liekly to surpass that soon.

In Coffee, don't forget the improtance of Vietnam - itis the second lead prodecer in the world and is suffering a DROUGHT that is the worst in 30 years, right in the Central Highlands where the Robusta is grown. This is causing the London market to rocket right now.

So the basic fundamental picture (to me) is a fear/perception of severely shortened supply from the 2 LEAD PRODUCERS (Brazil/Vietnam), plus a confimed increase in WORLD DEMAND and the opening up of huge new markets such as China, Russia and East Europe. Roasters (the trade) are paying up, fearing that prices will not correct. Producers are holding on for higher selling prices. Speculators are jumping on the bandwagon.

In short, all the classic ingredients for a MAMMOTH SPIKE in prices.

IMO.

 

[DaveT]

Bloomberg :

Coffee rises to 5-year high in LONDON on Vietnam Drought.





Brazil Annual Inflation Rate Slows a Second Month on Higher Interest Rates

ABN Amro Recommends Buying Brazil Real; Forecasts 2.5 Per Dollar in May

Coffee Reaches Five-Year High in London; Lack of Rain May Cut Vietnam Crop




Coffee Rises to Five-Year High in London on Vietnam Drought
March 11 (Bloomberg) -- Robusta coffee futures rose to a five-year high in London after gaining in Tokyo on concern a lack of rainfall will damage crops in Vietnam, the biggest supplier of the bean variety.

Robusta, used by processors such as Nestle SA and Procter & Gamble Co. to make instant coffee, has surged 47 percent this year to the highest since February 2000 on Liffe. Vietnam's top coffee-producing province may have its driest year since 1978, a government agency said last week.

``Production is falling as Vietnam is facing drought,'' said Yutaka Hama, a commodities analyst at Okato Shoji Co. in Tokyo today. ``Concern about the situation is surfacing again.''

Robusta for delivery this month rose $42, or 4 percent, to $1,085 a metric ton on Liffe at 10:23 a.m. London time. The two- day gain of 10.8 percent is the biggest in almost three years. On the Tokyo Grain Exchange, Robusta for January delivery ended trading up 600 yen per 100 kilograms, or 5.4 percent, at 11,770 yen ($1,130 a ton).

Japan is the world's third-biggest coffee importer, supporting 90,000 coffee and tea shops that sell $9.9 billion of beverages a year. The country also is buys Arabica, the milder- tasting variety preferred by specialty roasters.

The coffee harvest in Brazil, the world's biggest Arabica grower and exporter, may fall as much as 24 percent, Singapore- based coffee supplier Olam International Ltd. said this week.

Roasters in Japan are seeking to bolster inventories on concern any frost in Brazil will erode production more and cause prices to rise further, Olam's Chief Executive Sunny Verghese said in a March 9 interview.

Inventory Buildup

``They're wanting to take longer inventory cover than in the past,'' he said. ``Those who were satisfied with a 12-month inventory cover are now wanting 18 months cover to make sure they don't get caught.''

Olam is one of the three largest exporters of bitter-tasting Robusta beans from Vietnam, where a lack of rain during the next two months ``could see a significantly lower crop next year,'' Verghese said. ``Production could come down from early estimates of between 950,000 and 1 million tons to 800,000 tons or lower.''

Vietnam accounts for about half of world's Robusta exports. In the main coffee-growing province of Dak Lak, crop losses from drought may total at least 100,000 tons, the Tuoi Tre newspaper reported today, citing local traders. That would leave about 220,000 tons, the report said.

``Soil moisture is reported as being below normal for this time of the year,'' in Vietnam, U.S.-based forecaster Meteorlogix said March 10. ``Rainfall will be needed to support the next coffee crop.''

Arabica futures in Tokyo also rose today. Arabica for delivery in January climbed 800 yen, or 3.5 percent, to close at 23,590 yen per bag ($1.49 a pound). They have surged 41 percent this year, outpacing Arabica's 33 percent jump on the New York Board of Trade.



To contact the reporter on this story:
Julie Tay in Tokyo at [email protected]
Jason Gale in Singapore [email protected]

To contact the editor responsible for this story:
Peter Langan at [email protected]
Last Updated: March 11, 2005 05:32 EST

 

[ducati998]

DaveT,

Obviously the funds are in control of this markket, but are the commercials starting to capitulate (on their shorts)? The COT reports of the next 2 weeks should provide the answer.

In Coffee, don't forget the improtance of Vietnam - itis the second lead prodecer in the world and is suffering a DROUGHT that is the worst in 30 years, right in the Central Highlands where the Robusta is grown. This is causing the London market to rocket right now.

These two statements are obviously a contrast. On the one hand, the Hedge Funds represent the speculative element, if other commodities are anything to go by, viz....oil.
The question is, what form of analysis underpins the HF position?
Are they technically driven, or fundamentally driven? The answer will give an important perspective to any positions that you currently hold.

The second statement regarding Vietnam, and the weather conditions effecting a probable reduction in crop raises two interesting questions.
1......Does Vietnam operate a buffer stock system as Brazil?
2......If yes, of what size is that storage?

The answers will provide a better indication as to the true supply situation, and suggest three further questions,
1...To what extent are the producers trying to manipulate price
2...What price level they will lock in profit, based on in this case the price chart.
3...Do Brazil and Vietnam as regards coffee, have a co-operative plan, even though the crops are different?

So the basic fundamental picture (to me) is a fear/perception of severely shortened supply from the 2 LEAD PRODUCERS (Brazil/Vietnam), plus a confimed increase in WORLD DEMAND and the opening up of huge new markets such as China, Russia and East Europe. Roasters (the trade) are paying up, fearing that prices will not correct. Producers are holding on for higher selling prices. Speculators are jumping on the bandwagon.

The fear, perception, of vastly reduced supply is a purely qualitative and emotional response, and would need to be underpinned by quantitative data that puts some numbers on the supply question.
Only with quantitative data can we move to qualitative data, and this would be in the first instance government policy, I suspect this would be difficult to uncover.
An indirect method would be via GDP and Tax Revenue. The figures would be a little wooly, but would give an independant viewpoint on government policy.

Regarding the growth in World demand, how elastic or inelastic, in relation to price, is this World demand?

The roasters, are in competition with each other, therefore price will rise. However, the margins of the roasters will dictate how high they can compete the price.
Therefore, a second line of inquiry would be via the financial statements, if public companies, and an examination will produce a fairly accurate view of just how high they can buy before their margins deteriorate to the point of taking a loss on operating margins.

In short, all the classic ingredients for a MAMMOTH SPIKE in prices.

Yes indeed, or a collapse.
But I tend to agree with you, there is probably a fair run left.

cheers d998

 

[DaveT]

Here is a QUARTERLY BAR CHART of NY Coffee, correct as of 5th March 2005.

Even a cursory glance at this chart tells me that there is a good PROBABILITY of SEVERAL HIGHER QUARTERLY BARS TO COME - similar to 1976-77.

This would carry this mega-bull market into late 2005-early 2006, and possibly to at/near record high price territory. I expect one of the BARS (in mid 2005) to show a sizable dip, which recovers and ends higher, again similar to 1976-77 on the chart.

The amazing strength in the CRB Index (next stop 337 = 1980 highs) is also simiar to the late 1970's.

 

[DaveT]

Officials sounding the alarm on Southeast Asian droughts

One of the worst droughts in years in Southeast Asia has raised concerns over crop losses in the region, prompting an emergency meeting in Thailand and a call from Cambodia for international assistance.

Ten areas in the northern Thai province of Chiang Mai were declared disaster zones on Friday so they could seek emergency assistance to alleviate the hardships of farmers and fishermen.

Vietnam's eight Central Highlands provinces are suffering their worst drought in 28 years, affecting about 1 million people and causing an estimated 1.3 trillion dong (US$80 million, €60 million) worth of crop losses.

The country's coffee industry _ the world's second largest, worth US$533 million (€396 million) in 2004 _ is threatened because the main bean-producing region is one of the hardest hit, said Nguyen Huu Trung, an official in Daklak province.

Cambodian Prime Minister Hun Sen on Saturday called for assistance from the international community as well as fellow Cambodians for a national campaign to help farmers who are short of water, while in Thailand, the newly appointed agriculture minister _ on her second day in the job _ chaired a three-hour emergency meeting on the problem expected to affect 70 of the country's 76 provinces.

In Cambodia, about 700,000 villagers are reeling from water shortages, authorities there said. Serious droughts have badly affected impoverished Cambodia for the past two years. ADVERTISEMENT



Laos, where most farming involves subsistence agriculture, is experiencing a drought more severe than last year because of a lack of rainfall and declining water levels in the Mekong River, said Wilawan Panulas, chief of rice and vegetable planning at the country's Agriculture Ministry.

Poor farmers in remote areas may be driven deeper into debt as they are forced to borrow money to survive, said Nhem Vanda, chairman of Cambodia's National Disaster Management Committee.

In northeastern Thailand, caravans of 10-wheeled trucks must travel through the hills to bring water to households in remote villages.

Scientists debate what is to blame.

Seasonal fluctuations in rainfall are at the heart of the problem, but the situation has become more difficult in recent years with a decline in water levels of the mighty Mekong River, which runs through China, Myanmar, Laos, Thailand, Cambodia and Vietnam.

The decline has a knock-on effect, as the Mekong's tributaries experience lower water levels or in some cases dry up entirely.

"Global warming has caused rainfall to decrease and the land to become hotter, which makes water evaporate more quickly," said Kansree Bunprakob, a scientist at Bangkok's Ramkhamhaeng University.

Other environmentalists say that new dams upstream in China _ built primarily to generate electricity _ obstruct water flow on the Mekong sufficiently to disrupt the river's ecosystem and harm agriculture and fisheries in the lower basin.

"The water level in the Mekong River has continued to drop in dry season since China built the first dam in 1992," said Chainarong Setthachua, director of the Southeast Asian Rivers Network, an environmentalist group based in Thailand.

Thai agriculture officials said spotty downpours during the rainy season and the early ending of that season this year led to lower water levels in rivers, lakes and dams throughout the country.

The rice crop this year is expected to fall 11 percent to 14 percent from last year's harvests, they said, and sugar cane production is also expected to drop drastically.

 

[ducati998]

Looming shortage has coffee prices soaring

Folgers again raises prices, this time by 12%; other roasters are likely to follow soon.

By Reuters

U.S. consumers awoke to higher coffee prices Friday morning after Folgers hiked its retail ground coffee by 12%, and other coffee companies may follow suit.

Folgers, the popular brand of Procter & Gamble (PG, news, msgs) and an industry trendsetter, lifted its list price for ground coffee by 28 cents to $2.56 per 11.5- to 13-ounce equivalent can.

The company attributed the move to soaring futures prices for arabica beans on the New York Board of Trade.

"This is because the New York "C'' contract has increased over the past 20 days to an average of $1.23 a lb. from 95 cents when we last took a price change on Dec. 9,'' said company spokeswoman Susanne Dusing,

On Dec. 9, 2004, Folgers boosted its retail prices on ground coffee by 14%, affecting about 75 percent of its retail coffee line.Banks and insurers
check your credit.
So should you.



That move prompted similar price increases just days later from other major roasters like Kraft Foods (KFT, news, msgs) for its Maxwell House brand and Sara Lee (SLE, news, msgs) for its Chock Full o'Nuts brand.

Since then, the high-quality washed arabica beans listed on the New York Board of Trade have climbed almost 40%.

Supply getting tighter
Indeed, prices have been hovering at levels not seen in more than five years, before the coffee market plunged into a four-year crisis with oversupply and low prices, forcing thousands of farmers in developing countries out of work.

The rise in the futures market has been largely fueled by industry expectations of a global supply deficit this year.

The International Coffee Organization expects world consumption of between 114 million and 115 million 60-kilogram bags, which would exceed projected output by 7 million to 8 million bags.

"We've had a very large run-up in wholesale prices and that is always going to be passed on to the retail customer,'' said James Cordier, president of Liberty Trading Group, a commodities brokerage.

"Folgers is usually the leader and we will see the other brands follow the lead either today or Monday,'' he predicted.

Spokesmen for Kraft and Sara Lee were not immediately available for comment.

Other roasters likely to follow
"Every roaster that we deal with, big and small, was waiting for someone to take the first step to lift prices,'' said Ray Keen, a coffee trader at Balzac Brothers & Co., a green coffee importer.

Green or unroasted, coffee comes in many varieties from high-quality arabica to robusta. A roaster buys the green beans, roasts them, then packages the coffee as ground or whole bean in tin cans or plastic containers or foil packets.

"Once that did happen, there were quite a few happy roasters this morning. And now they are all looking for the next raise,'' Keen added.

Judy Ganes, a commodities analyst with J Ganes Consulting, agreed. "It's only to be expected. The market has come up significantly from the last time they raised prices. I'm actually surprised it took as long as it did.''

The New York Board of Trade's benchmark arabica contract for May delivery peaked just shy of $1.40 a pound on Friday. In stark contrast, benchmark coffee contracts traded between 40 cents and 60 cents a pound from May 2001 to September 2002.

 

[gene]

The COT charts show that activity has leveled off, the seasonal chart shows a brief dip in the middle of March, and the daily chart looks like it wants to take a step back.
Maybe...Just maybe we procrastinators (chickens) will soon have what we feel to be a safe entry point, again.

 

[zarif]

Nice discussion and views on coffee. Will watch it rom now on and hopefully short on retrace.
rgds
zarif

 

[DaveT]

Hi zarif -

I have just ADDED to my JULY LONG position in NY Coffee (today Tues 15th March) - on the correction/dip early in the session.

I've been Long May and JUly since 9600 (basis May 05), adding on good corrections , like today..My targets are July Monthly Continuous Resistance points :

1) 14900
2) 17400
3) 18200-18375

Here is July chart:

 

[jklondon]

also added today - on Robusta.

 

[jklondon]

mmm, any thoughts on direction... this thread has gone very quiet! (unsuprisingly perhaps)

 

[gene]

One can only guess, and I've been waiting for a danged correction all the way up 🙁 .
IF this freight train ever puts on the brakes (as it appears it has) and backs up, then watch for support to hold at one of the two lower support lines. At that time, this freight train just might become a rocket.
That's my highly unreliable guess.

 

[DaveT]

Patience guys. 😎

We have just hit a trendline , and look to be completing this consolidation phase soon. New highs should follow within the next week or two.

The seasonal charts pointed to a dip mid-late March, and now point to further strength during April (and May).

Fundamentally, :

1) The severe drought in Vietnam continues,
2) Roaster buying is becoming more evident as we rise.
3) Brazil frost-risk season starts in May.
4) Cash prices have remained strong.


I remain substantially LONG July NY Coffee, (having accumulated on dips) , targeting :

1) 15000 Monthly Resistance
2) 17400 Monthly Resistance
3) 18200-18375 Resistance.

Here are July daily and monthly continuous log charts: