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Wild swings in coffee prices

  • Coffee futures show increasing volatility as strong rains in Brazil bring relief to the drought-stricken region.
  • A measure of volatility on the 60-day Arabica futures contract hit its highest level since 2000 as prices eased back to $1.743 a pound earlier today.
  • Citi forecasts prices will fall in range of $1.51 to $2.25 over the next few quarters as the impact of the drought lingers.
  • Related stocks: SBUX, GMCR, JVA, DNKN
  • Related ETFs: JO
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Comments (6)
  • Tom Shaughnessy
    , contributor
    Comments (1131) | Send Message
     
    So Citi can't be wrong here with their projection... talk about broad.
    25 Mar, 01:11 PM Reply Like
  • benitus
    , contributor
    Comments (1962) | Send Message
     
    Citi has been known to be wrong before and any idiot can cast a wide net over price projection. Given the strong rains, coffee prices should retreat dramatically (as they have done before) after the next quarter, rather than increase. How stupid can they be? I expect GMCR to retreat below $100 in the near future, possibly to $90, which I've been waiting for. Let's drink to that.
    25 Mar, 02:13 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5619) | Send Message
     
    If coffee prices fall, (JVA) will fall. Good thing is that my cup of Joe will get cheaper.
    25 Mar, 09:18 PM Reply Like
  • hammster70
    , contributor
    Comments (14) | Send Message
     
    Actually, no. JVA announced $0.22 eps in Q1 despite avg coffee prices of $1.20. This will give a P/E of 8 if they continue to announce similar earnings. JVA had problems last year due to improper hedging and dealing with the lowest coffee prices since 2006. They have recalibrated their business to deal with the lower prices. Now, coffee prices are over 40% higher.

     

    Even if coffee prices go back to $1.20, JVA will continue to rise. With prices around $1.80, the stock will double at least and above $2, it will triple.
    28 Mar, 08:04 AM Reply Like
  • Michael Bryant
    , contributor
    Comments (5619) | Send Message
     
    Good to know. Thanks.
    28 Mar, 08:40 AM Reply Like
  • Count De Monet
    , contributor
    Comments (34) | Send Message
     
    I think Citi and MDA forecasting are way off in their analysis for multiple reasons: First, Crops like coffee are not like a widget that because the price is high production can be ramped up instead it needs to grow and mature requiring a harvest lag time. Second, the crop is already heavily damaged and will result in lower yields due to the drought even if rains do come. Third, I have been monitoring the rainfall radar over the past several days readily available thanks to the wonder of the internet and the rains have been nowhere near substantial with only about 2mm of rain falling on any given day in coffee producing areas of Brazil, a bit short of what is needed. Fourth, coffee also does not fare well when it is drowning in rain and with the El Nino setting up in the Pacific it will bring torrential rains starting around May, which is highly coffee production negative and coffee price bullish. The long and short of it is that Coffee has run up and is pulling back but the true extent of the crop damage wont be known until mid April at best and I for one would not be surprised to see another run in coffee as a result of that news. Moreover one poster mentioned that if coffee goes down that JVA has to go down, which is false. First, JVA managed to do very well last two reporting periods when coffee reached multi year lows and they operate in a lag to the price of coffee and will peak out 3-5 months after the price of the beans. You can see this in the chart I am providing here using $JO as the proxy for coffee as it is supposed to track price vs $JVA. ( http://bit.ly/1iuSo1r ) $SBUX is in a different situation as they have large contracts and at least 1 years supply of coffee locked in to be able to ride the typical market swings. $DNKN I can not speak to at this time.
    26 Mar, 09:27 AM Reply Like
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