The Trend Nobody’s Talking About

Ok, well… not nobody, the WSJ’s MoneyBeat blog had a recent piece saying:  “Welcome to the Coffee Bust”. But for trend followers who keep their eyes peeled for the next trend that’s going to take hold, we’re wondering why so few managers have caught on to the multi-year decline in a commodity the entire world needs to function in the morning… Coffee:

Chart courtesy Finviz.com. Disclaimer: past performance is not necessarily indicative of future results.

Since its peak in 2011, coffee has dropped more than 50% percent, yet we’ve been hard pressed (pun intended) to find many trend followers who have participated. Coffee may not be the most heavily traded market, but after 2 years of decline you’d think some of them would have jumped on this trade. Some other trends have started and finished three or four times in the time this downward slope has been happening.

One CTA who has participated in the short Coffee trade is Integrated Managed Futures Corp. According to IMFC Chief Investment Officer, Roland Austrup:

“We’ve been short CSCE Arabica coffee since October 2011, and we started building a short in Liffe Robusta in early April of this year… The Coffee trade (CSCE in particular) represents a textbook trade for  a long-term trend-based strategy. Coffee was very expensive in 2011 under several definitions – nominal or real price history, price relative to cost of production. Prices started braking down, any backwardation that was in place disappeared and the futures curve eventually went into contango. These are all ingredients for a potential secular long-term bear trend. And, as it turns out, the market went into surplus, one which continues to expand at present. When prices are high for a commodity and it goes into surplus, there is only one outcome … a secular bear market.

As for why so few other managers have picked up on this trend. Mr. Austrup had a few ideas:

“Coffee is a commodity that tends to exhibit very long term secular moves (including long trendless periods), but a lot of noise and gaps under shorter-term timeframes within the long-term trend. As such, I suppose it is not a market that is likely to be successfully traded under short-term time horizons. It is far too random and erratic in the short term.”

And of course the question we’re left with… if the price of coffee beans has fallen by more than half, why does my Starbucks still cost the same?  Then again, they’re getting away with selling people coffee for $7 a cup now, so maybe they’ve just figured out that when it comes to the morning joe, people just aren’t that price sensitive.

Finally – for the nearly $90 million invested in the cleverly named Coffee ETF “JO” who have lost -67% over the same period –  a read of our recent commodity ETF takedown may be just what the doctor ordered to kick that caffeine habit.

One comment

  1. All Markets are Created an Equal Disagreement on Value and an Agreement on Price.

    Arabica coffee long from current level 121.75 with first target 124.17, then 127.90 and 128.45

Write a Comment

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.