Is a Coffee Price Breakout Imminent?

Coffee futures are not my favorite to trade. They're so volatile that it's tough to distinguish a true breakout from noise.

Hopefully for me (I went long the Dec. contract Tuesday), this move has more legs than the head fake from June:

click to enlarge

Taking a step back, the long-term trend for coffee is up, up, up:

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.

Disclosure: Long

Comments

[miraka:]

So do coffee stocks?

2008 Sep 10 10:11 AM

[miraka:]

So do coffestocks rise?

2008 Sep 10 10:12 AM

[Darrell:]

When I retired, I stop going to coffee shop for my moring fix. Instead I drink coffee at home; I do have a $3 off with coupon for Yuban and/or Maxwell coffee.

No item limit, so I will stock up. Does anyone know shelf life for ground coffee?

2008 Sep 10 06:30 PM

[Lesismore46:]

Coffee stocks are loosely correlated with the price of coffee beans. Since coffee sellers must buy the coffee beans as a production input, if the cost of coffee beans rises then the coffee sellers cost rise and profits fall. However if the coffee seller is selling more coffee to an increase in demand either locally or internationally, then the seller can pass on some of the higher costs in the form of higher ground coffee prices. The short answer is coffee sellers would rather see stable, slow rises in coffee bean prices and do not want to see a sharp breakout in coffee bean prices because they can not push the increased price on to their buyers and hence profits will fall.

Shelf Life Ground coffee - 2 years unopened, 2 weeks opened (in refrigerator)

2008 Sep 11 01:14 PM

[Annie Hamilton:]

are you nuts? two years? most places burn their coffee. the only place that has fresh coffee is peets. I've researched this and they don't even order their coffee until you buy it - I'm not a coffee drinker (i prefer teas myself) but if you guys are drinking coffee at home, best to spend the extra 2 bucks and get the freshest stuff you can get, it's better for you and lasts longer and has a richer flavor. the two worst from what i've found are starbucks and dunkin donuts.

Jan 27 11:04 AM