Best Thread COFFEE - The next big bull?

[DaveT]

The Kman -

A STOCKS-TO-USE RATIO is a measure of how much SUPPLY of a certain commodity is 'in stock' (i.e. stored in warehouses/delivery points, etc), as a percentage of the total USE of that commodity (where USE defined as demand/consumption)

So if COFFEE has a projected Stocks-to-use RATIO of 16% for 2005 ( see ICO website for actual figures), this means the total Global Coffee Stocks represent ONLY 16% of anticipated TOTAL USE (or demand)

One can easily see that this presents a very tight Supply/Demand scenario. If stocks are that low (in relation to demand), the price will NORMALLY have to rise high enough to RATION that demand.

However, Coffee is 'DEMAND INELASTIC' - meaning consumers/industry will maintain demand for Coffee even as the price rises. So the only real change to this situation will come when :

a) Producers sell Coffee they are currently withholding (taking advantage of high prices.)

b) The future crop is made and comes in higher than anticipated, guaranteeing future supply.

c) Producers/growers respond to high prices by planting more/expanding acreage, boosting future supply projections.


At the moment, none of the above looks likely in the near-term. Therefore , we can expect COFFEE prices to continue to rise through the first half of 2005, and after a harvest low is put in (july), perhaps even rise further to the end of the year - as happened in 1976-1977.


www.ico.org
www.dailyfutures.com

 

[gene]

Dave,
Thanks for refreshing my memory. I've been watching the charts, but I had forgotten just HOW bullish the fundamentals are. Shame on me.

 

[STJEPO]

Dave,

Have you read this?

http://www.heritage-coffee.com/CoffeeMarketUpdate.htm

Regards

 

[DaveT]

STJEPO -

Very interesting update.

Thanks.

 

[..]

correction

[ thought we were going to have a nice little correction over the next few days in NY coffee giving a fine buying opportunity at around 110-112, but no, today we see new contract highs, batten down the hatches, all aboard, this trains leavin' the station

As Dave rightly says, when the shorts finally start to cover this ones going much higher - looking at the daily chart price has only fallen below the 10 day EMA a couple of times since November - hit it again yesterday and took off again. - how do you load up in this market?

 

[DaveT]

Newport - I added JULY LONGS to my position on the correction early in today's session - (Wed 23rd Feb0.

This proved very timely as we rocketed higher later in the session - up over 600 points.

As I said several weeks ago - around Christmas time - buy on the dips in this strong Bull market. Place loose stops and position trade for weeks or months out, IMO.

My targets for JULY Coffee as based on Monthly Resistance levels :

R1 @ 15000
R2 @ 17400
R3 @ 18375

I beleive there is a good chance of any of these levels being hit, and I will continue to add to my position on corrections as I see them.

Make no mistake - this is THE Coffee Bull Market we have been waiting YEARS to witness.

It's curious that there aren't many of the seasoned posters at T2W involved here(i.e those that posted on Coffee trading during the basing phase.) - or if they are, they are keeping quiet about it!

The COT Small Spec levels show that the Public is not really invloved in this rally. Good traders here should recognise and participate in what could be AN HISTORIC YEAR for Coffee.

All IMHO.

 

[DaveT]

Ny Coffee Review - Sprints to new 5-year highs; FUNDS BUY
-----------------------------------------------------------------------------------




DJ Nybot Coffee Review: Sprints To New 5-Yr Highs; Funds Buy
NEW YORK (Dow Jones)--Arabica coffee futures rallied to new contract and
five-year highs on the New York Board of Trade on Wednesday in a late surge as
funds and locals bought and shorts rushed for cover, traders said.

The March contract settled 645 points higher at $1.2155 a pound, and May
closed up 640 points at $1.2365.

"After Friday's commitments (of traders) report showed the funds as record
long, people expected a sell-off this week," said Hernando de la Roche,
director of Hencorp Coffee in Miami. "Shorts covered in today's rally, a big
buy stop was hit and funds were buying."

A desk trader pointed to options-related buying in futures because of a
transaction in the 1.15 April puts. "After that the market took off and funds
bought another 2,000 to 3,000 lots today" in an absence of selling.

The May/July spread settled at 210 points May under, against 225 points on
Tuesday.

Futures volume was estimated at 19,408 lots, and in options, 4,835 calls and
3,606 puts traded.

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

"Brazil's new crop looks as if it will be between 32 million and 35 million
bags, but we need to wait another 30 days or so for fresh estimates from local
dealers," de la Roche said. Last year's crop was officially put at 38.7 million
bags.

A trader in Connecticut cautioned that while the Brazilian government is
working with a crop forecast of 31 million to 33 million bags, "big trade
houses see the new crop at 35 million to 38 million bags. If Brazil's crop is
bigger than the Brazilians are saying and the Vietnamese harvest was bigger
than the Vietnamese have said, the global production deficit this season could
be smaller than the 5 million to 7 million bags that the International Coffee
Organization and others are predicting."

But the Connecticut trader also said funds didn't liquidate anything in
Tuesday's sell-off, judging by the open interest, and were new buyers again
today.

Meanwhile, Brazil's Agriculture Ministry sold 98% of the 80,000 60-kilogram
bags of old stocks auctioned on Wednesday, the Banco do Brazil said. At the
last auction on Feb. 11, the ministry sold 100% of the 50,000 bags offered.

Brazilian cooperatives held 6.05 million 60-kilogram bags in stocks on Jan.
31, up 33% from a year before, the National Coffee Council said Tuesday. Co-ops
control roughly one-third of Brazil's private stocks.

In Colombia, exporters are being cautious because of speculation that the
mitaca, or midyear harvest, will come in smaller than expected. Exporters don't
want to oversell and fall short of their contracts.

On the fourth day of the delivery period, 22 Nybot March notices were posted
on Wednesday, bringing the total to 1,013. Refco, Gelderman and Savant were the
issuers and Fimat was the leading receiver.

Most of the March liquidation is done now. Nybot March open interest shrank
152 lots Tuesday to 2,624 lots and May interest fell 453 lots to 83,447 lots.
Total interest declined 214 lots to 106,00 lots.

The CRB Futures Index reached a 24-year high on Wednesday.

The Nybot May contract faces resistance at $1.2425, $1.2450, $1.2500,
$1.2550 and $1.2600.


Nybot Change Range Liffe Change
Mar 121.55 up 6.45 115.10-122.00 Mar 835 up 26
May 123.65 up 6.40 117.10-124.25 May 865 up 28


-By Susan Buchanan; Dow Jones Newswires; 201-938-5950;
[email protected]

 

[josbarr]

ADX is reading 35.87

Strong trend

 

[monarch]

Open question;

Has anyone ever found a source for the "cost of carry" for certain commodities?
I have spoken to my broker who has never seen any details.
It seems that it is something that would be quite handy to know.

thanks
Monarch

 

[gene]

Another great buying opportunity in the coming days. (Sometimes, I hate weekends. )

Another thing to look forward to: Look how rapidly the market has crashed after peaking......!!!

 

[DaveT]

Gene -

Yes indeed - the long awaited correction is finally underway.

We need to correct the constant overbought status of the slow stochastic and RSI.

Seasonal chart points to some consolidation in early-Mid March. The trough of this 'pause' in the bull market should be an EXCELLENT chance for new longs to get in.

Remember - you can always BUY HIGH, SELL HIGHER.

 

[..]

spreads

just a couple of points

1/ is there any firm offering less than 80-pt spread on NY coffee?
2/ has anyone looked at support levels on daily/weekly charts - looks like 106-8 or 110-112?
3/ an interesting point is that the dollar has lost 20-30% of its value in last 3-4 years - although the historic highs/resistance levels probably hold true irrespective of the relative value of the dollar - it is an interesting point that the 120c level is only around 100c when you take account of the depreciation of the dollar - so in fact we are still in the very early stages of this bull market
4/ I like your point Gene on the shorting potential of this market - I will use a trend following system for this market with EMA - and shorten them to close when we get exponential !!
5/ think of all the new coffee houses in the UK since 1997 - the last bull run - Costa/Coffee Republic/Starbucks/Cafe Nero ....
6/ happy trading

regards

Mark

 

[..]

ok, that was 6 points


but look at www.zealllc.com for some good analysis on "relative trading" - this guy is spot on - but has made a couple of bad calls notably march 2003 on the stock indices - but he has some good articles if anyopne here is a contrarian trader - good articles on the gold bull underway - well worth a look - (no connection personally to this site)

regards

 

[gene]

I think support/resistance levels are defined by trend lines much more often than they are by horizontal lines. Dave and I have drawn the same lines on our charts. (I'm proud of that, because I have respect for Dave's trading...he's proven himself...again and again.)

I like my idea about shorting the market at it's apex, too. The problem I have with it, though, is how do I know when it's reached the top? Maybe It'll give a clear signal; maybe it won't. I guess the way to go about that would be to trade small when I think it's turned. (Maybe y'all are saying, "Well, duh!!)

I'm also tempted to short the corrections, but that's too dangerous, so I have to remember that I wrote my signature for a reason.

 

[..]

Gene,

Have you looked at trend following at all ? - they (the trend followers dont try to pick the top but look to get most of the middle of a big move - and wait until the apex has passed for a sell signal (based on some kind of moving average setup - pretty simple stuff technically - but works)

The more practice at this game the more sense not to try to outguess the market

 

[gene]

Thanks for the reminder of the obvious! I sometimes speak before I think--especially when I'm excited by the possibilities. I think it's called greed.

 

[rp_walters]

Coffee is nice.

Hi Dave,

Coffee continues to show great returns. I myself believe Palladium will show strong returns this year too. All time low, being a LTPT (Long Term Position trader) I look to get involved at historically low levels. One thing we do know in life is that history repeats itself.

I`m in Coffee and share your enthusiasm for the long term.

Phil

 

[bgold]

Hi Dave,

Coffee continues to show great returns. I myself believe Palladium will show strong returns this year too. All time low, being a LTPT (Long Term Position trader) I look to get involved at historically low levels. One thing we do know in life is that history repeats itself.

I`m in Coffee and share your enthusiasm for the long term.

Phil

Please find attached two charts with different analysis of the coffee chart. Note that I have missed the ride thusfar and might be biased as I am still looking for a "low" risk entry!!

Still food for thought.

 

[DaveT]

Bgold - good to see your views/charts on Coffee.

I was looking for a seasonal (March) correction, although the persistant strength in this market means it may be a very shallow one - if it occurs at all.

At the moment, we need to break above recent spike highs to negate thier respective 'reversal' implications.

If it does correct, I will look for support at the trendline from Oct/Nov low.

BTW - is that chart with the diamond formation Jim Wykoff's 'hot market' analysis, by any chance?

 

[DaveT]

DJ Nybot Coffee Review: Heads To New 5-Yr High; Funds Buy
NEW YORK (Dow Jones)--Arabica coffee futures rallied to new contract and
five-year highs on the New York Board of Trade on Monday, extending early gains
in late action as funds and others bought while origin selling was minimal.

The March contract settled 615 points higher at $1.2800 a pound and May
closed up 615 points at $1.3020.

"We saw fund buying, stop-loss buying and options-related buying - all into
limited selling," a desk manager said. "It was a busy day and I'm up to my neck
in paper."

The May/July spread settled at 240 points May under, unchanged from Friday.
Futures volume was estimated at 16,379 lots, and in options, 11,582 calls and
6,631 puts traded.

"I wouldn't say the funds were heavy buyers today (Monday)," a floor broker
said. "It's that there wasn't much selling from the trade or anyone else."

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

Buyers were spurred by a smaller-than-expected fund long position on Nybot in
Friday's commitments of traders report, a desk trader said.

Funds stood net long 41,945 lots of Nybot arabica futures as of last Tuesday,
little changed from the previous week, according to the Commodity Futures
Trading Commission.

Brazilian coffee exports, including soluble or instant, totaled 1.73 million
bags in February, up 11% from February 2004. Coffee export revenues rose 55% on
the year to $169 million because of the recent surge in world prices.

The market remains buoyed by an expected smaller Brazilian new crop,
harvested this May to September, and by a prospective decline in world coffee
inventories this season.

Projected world consumption of 114 million 60-kilogram bags in 2005-06 will
exceed production of 107 million bags, allowing stock drawdowns, according to
Nestor Osorio, head of the International Coffee Organization, speaking at a
National Coffee Association conference in Aventura, Fla., on Friday.

"This year the global industry has begun to emerge from the low-price crisis
of 2000 to 2004," with world prices above $1.25 a pound now, Osorio said.
Growers in Central America and elsewhere, who couldn't cover production costs
in recent years of depressed prices, can turn a profit now.

Eastern Europe, Japan and other Asian nations are all promising coffee
markets, said John Gilmore, of Datamonitor, speaking at the conference
Saturday. Coffee sales in Eastern Europe are growing two to three times faster
than in Western Europe and the U.S., while Japan is "where the big dollars are"
in Asia, he said.

Funds are responsible for healthy Nybot coffee volume and open interest, said
John Santos of Brown Brothers Harriman, speaking at the conference on Friday.
Managed money held by speculative funds overall has swelled to $1 trillion from
$50 billion 10 years ago, he noted.

The CRB Futures Index reached a 24-year high on Monday.

Nybot May coffee finds support at $1.2500, $1.2450, $1.2400, $1.2350 and
$1.2300. May faces resistance at $1.3060, $1.3100, $1.3150, $1.3200 and
$1.3250.


Nybot Change Range Liffe Change
Mar 128.00 up 6.15 122.50-128.00 Mar 948 up 15
May 130.20 up 6.15 125.00-130.60 May 971 up 12