ENERGIES | METALS
By Kevin Davitt
To discuss this commentary in more detail, email me at firstname.lastname@example.org or call 312.870.1520.
When discussing the Coffee market, I have a self deprecating tendency to say I know very little about it outside of the fact that it's delicious. While the latter is absolutely true, the former is only partially true. I've watched Coffee over the past 5 years and traded it in 2011 when it went parabolic as well as over the past year where the weight of bumper crops in Brazil have pushed Coffee futures to multi year lows. In fairness, the folks at Nestle, Sara Lee, and Kraft have far superior knowledge as it pertains to the physical market, but I've gleaned a considerable amount of knowledge over the past few years.
In an exciting recent development, RCM is partnering with a well respected Softs/Agricultural analyst with an impressive pedigree. We're pleased to introduce Dr. Rao Achutuni. In brief, Dr. Achutuni spent two decades with the USDA and since then has run his own consulting firm - Eastern Government Solutions Incorporated (EGSI). See more here:http://cocoaworldnews.com/CocoaWorldNews/Contact_files/Rao%20Achutuni%20Brief%20Bio.pdf . Dr. Achutuni is the type of guy Nestle or Kraft might hire as a consultant. We're incredibly excited to be working with him and our clients should appreciate his insights.
Rao is working toward establishing a Softs/Ag niche Commodity Trading Advisory (CTA). We will be assisting Dr. Achutuni in raising assets as well as consulting on the best way to express market sentiment using options (a firm strong suit). Feel free to email or call for more information.
Moving on - Of late Coffee has been on the move. The range trade with lows around $1.17 and highs around $125 was broken this morning with Sept Coffee trading up to $126.75. Perhaps more interesting is the fact the Arabica v. Robusta spread was as narrow as it's been at any time since the end of December 2008.
Here's some interesting basic information via Anthony Grech at IG Index.
- The two main types of coffee that are traded are Robusta and Arabica
- Robusta is generally traded on the London International Financial Futures and Options Exchange (LIFFE)
- Arabica is generally traded on the Intercontinental Exchange (NYSE:ICE)
- Arabica Facts
- Arabica is also known as Coffea Arabica or Coffee 'C' when referring to coffee futures
- When Arabica coffee cherries ripen they fall to the ground and spoil
- Arabica accounted for around 60% of world coffee production. Brazil and Colombia produce the majority of the world's Arabica supply
- Robusta Facts
- Robusta is also known as Coffea canephora and Conillon
- It is considered to be of a lower grade than Arabica. It has twice the caffeine and produces an inferior taste
- The Robusta plant is easier to take care of and has lower production costs. When its coffee cherries ripen they remain on the plant
- The Robusta plant is less susceptible to disease than Arabica
- The Robusta plant can grow in areas where Arabica cannot
- Robusta accounts for approximately 40% of global coffee production. Vietnam and Indonesia produce 50% of the world's Robusta
Here's some up to date news on the global state of Coffee which was discussed with Dr. Achutuni this morning. https://docs.google.com/a/rcmam.com/viewer?a=v&pid=gmail&attid=0.2&thid=13fe7ee1b6189232&mt=application/pdf&url=https://mail.google.com/mail/u/0/?ui%3D2%26ik%3D3ac1a3efda%26view%3Datt%26th%3D13fe7ee1b6189232%26attid%3D0.2%26disp%3Dsafe%26realattid%3Df_hj77kl422%26zw&sig=AHIEtbTdDHPKtNaorQrpB7YvaB45LwU4Gg
Nobody knows what the future holds and there's risk inherent in every market, but the Softs have been under fairly relentless pressure for about 18 months. Look at Sugar, Cocoa, or Coffee.
Here's a look at Coffee (Arabica) 1 year:
And Robusta (which has rallied 13.5% in the past few weeks) with a spread that's narrower than it's been in 4 1/2 years. Hmmmmmm.
To learn more about Dr. Achutuni's nascent CTA, give us a call. We're very excited to be working with Rao in a niche market. We see tremendous opportunity.
In other news, BERNANKE TESTIMONY TOMORROW MORNING.
Finally, every news organization has a camera and reporter parked at a gas station lately. In my experience, that tends to mean we're closer to a top than a bottom. The RIN market (Ethanol - blending requirements) has ripped higher lately which plays a significant role in the RBOB move. Energy inventory data tomorrow. We've had two consecutive weeks with anomalous draws from Cushing, OK. Watching closely.
August WTI options expire tomorrow. I think an argument could be made to own the expiring $105 puts for between .25 and .20. You know your risk and if Crude reverses a few bucks......you could do well. Asymmetric opportunity in my estimation. Short term lotto tickets.
Risk Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities and/ or financial products herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed to be accurate. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions ("Forex") before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.