Update on Your Morning Coffee

By Brad Zigler

Real-time Inflation Indicator (per annum): 8.4%

As Americans girded themselves for Thursday's gridiron and cholesterol indulgences, there were some not-to-be-thankful-for things brewing in their favorite beverage market. Bloomberg correspondent Carlos Caminada filed a Tuesday report from Brazil citing the troubles local coffee farmers faced obtaining credit.

"The collapse of global credit markets that is pushing the U.S., Europe and Japan into simultaneous recessions for the first time since World War II also threatens farmers in Brazil, the world's biggest grower of coffee, oranges and sugar cane," writes Caminada. The pinch on farm loans is limiting producers' ability to acquire fertilizer and pesticides which, in turn, is likely to result in smaller harvests next year, according to agronomists.

In particular, reduced fertilizer usage is likely to drop Brazil's coffee harvest by 26%, according to Caminada's sources.

We looked at this possibility in our feature, "Venti-Sized Gains For Coffee" earlier in November. This isn't an out-of-the-dark happenstance. In-the-know commercial users of the futures market have been lightening up their short coffee hedges for months and actually turned net long in October.

Meantime, coffee futures continue base-building. March ICE/NYBOT futures have now nosed above its 20-day moving average price, closing above the $1.16-a-pound level in pre-Thanksgiving trading.

ICE/NYBOT Coffee (March 2009)

Two markets are in play in the Brazilian farm credit squeeze. The obvious one is of course, coffee. For the futures-averse, the supply scenario will manifest itself through the iPath Dow Jones-AIG Coffee ETN (NYSE: JO).

Then there's the fertilizer market. Fertilizer prices remain firm, but demand - or rather the lack of demand from credit-starved farmers - could result in discounting. That could impact agrichemical outfits such as Potash Corp (NYSE: POT) and Monsanto Co. (NYSE: MON) as well as other agribusiness firms included in the Market Vectors Agribusiness ETF (NYSEArca: MOO).

Market Vectors Agribusiness ETF (MOO)

Still other MOO constituents, such as agricultural traders Archer Daniels Midland Co. (NYSE: ADM) and Bunge Ltd. (NYSE: BG), could be affected, as they supply credit to Brazilian farmers, taking crops as repayment.