Seeking Alpha

Coffee prices take a turn higher

  • Robusta coffee prices rose to their highest level in three months in London trading after bean stockpiles fell more than forecast.
  • Arabica coffee prices also showed gains.
  • Related stocks: SBUX, GMCR, SJM, KRFT, CBOU, JVA, KKD, NSRGY, DNKN.
  • Related ETFs: JO.
Comments (10)
  • I've been buying JO. I was surprised at the size of the bounce, but don't think the dog-days of coffee are over. There's still plenty of it around. But, something will happen one of these years--there's a lot of specialty shops in China trying to convince the Chinese that it's a cool thing. Sooner or later a disease will hit the plants--seems to always happen, and farmer care drops when prices are low.
    13 Dec 2013, 08:32 AM Reply Like
  • Jo is one of my larger long term positions. The price now is pretty close to what it costs for the farmer to produce coffee. Sure it can stay this low for a while or even go lower, but the chance of something going wrong with the crop in the next several years is pretty high. When that happens coffee will increase dramatically. Each year it cost the farmer more to grow the coffee. If prices stay where they are now it will make no economic sense for them to continue growing coffee and will turn the land over to some other use.
    14 Dec 2013, 09:56 AM Reply Like
  • This is exactly what I was talking about SBUX is not just coffee company. You have to be extra careful about coffee's price as commodity which can be really pain in the butt. I have quite a few commodities including futures oil, it can be a night mare - just look at the gold now. Something like that happens, SBUX is done. BTW SBUX is down again today while all other stocks are up in general
    13 Dec 2013, 01:56 PM Reply Like
  • I am long JO. Does anyone know the # of front month future contracts it holds and rolls(is it two or three)? Thanks
    14 Dec 2013, 02:00 PM Reply Like
  • I don't know the exact answer. I have read the JO prospectus. The two salient features are that they use something called the "Dow Jones Coffee Subindex" and that it is designed as a note which matches that index less a cumulative 0.75% per year. I find that it's pretty close to the coffee price published on FinViz minus a modest amount (roughly a penny to a penny and a quarter) for the charge that has accumulated over time.

     

    I don't think the roll matters too much--if I did, I'd check the composition of the subindex. It's not like the VIX, where the thing you care about (volatility) is dropping as time expires, or the UNG natural gas contract, where everyone in the pits is playing the roll. At least, it's not right now--no one cares much about coffee, and I believe the contango/backwardation is pretty flat.
    14 Dec 2013, 04:02 PM Reply Like
  • PBS, Thanks for the response. I feel better about holding long term if contango is not much of an issue.
    14 Dec 2013, 08:51 PM Reply Like
  • One clarification: The JO price is equal to 1/5 the FinViz coffee price minus about 1 to 1.25 cents. So, over the six or seven years this has been in existence, 5 to 6% of premium difference between the coffee price index and the JO price has accumulated.
    17 Dec 2013, 09:12 AM Reply Like
  • Thanks again POS! Are you long JO?
    17 Dec 2013, 07:48 PM Reply Like
  • Yes. But it's still what I'd consider a half or third-size position. I'm prepared to hold it for a couple of years. I bought at coffee prices of about $1.15 and $1.10, but got greedy looking for $1.00. We'll see if this was the last dip... but I doubt it.

     

    POS... I can think of other phrases with that acronym besides my screen name, LOL.
    18 Dec 2013, 10:20 AM Reply Like
  • Yes, I am... but it's only what I'd consider a partial position. The recent rebound in Coffee put my JO at where I started to leg in. I was holding out for a buck/pound for my next leg--who knows if I'll get it.
    6 Jan, 04:14 PM Reply Like
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