Chart of the Week: Coffee Cuing Up an Up Trend?

Move over Natural Gas… the latest commodity that is perking up (pun intended) is everyone’s favorite morning nectar, Coffee.  The $7 Billion dollar market is up almost 30% YTD, and was up 8 consecutive days before some profit taking today {past performance is not necessarily indicative of future results}.

Coffee one(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Finviz

First in understanding the Coffee market, there are two important distinctions… Robusta Coffee (the dominant market traded at the NYSE Euronext) and Arabica Coffee (traded at ICE). [the finviz chart above shows the Robusta futures]. But it’s not just where they are traded, there’s also a difference of where they’re grown. Robusta Coffee is grown at low altitudes (mainly Asia), while Arabica typically comes from South American countries and is grown at higher altitudes (Colombia, Brazil), laid out nicely in this handy infographic:

Coffee infographicInfographic Courtesy: The Pilot’s Blog

And for you coffee snobs out there, there’s a difference between the taste, at least according to The Pilot’s Blog:

“Robusta has a neutral to harsh taste range and is often likened to having an “oatmeal-like” taste. When unroasted, the smell of Robusta beans is described as raw-peanutty.

Arabicas, on the other hand, have a very wide taste range (depending on its varietal). The range differs from sweet-soft to sharp-tangy. When unroasted, Arabica beans smell like blueberries. Their roasted smell is described as perfumey with notes of fruit and sugar tones.”

Both contracts are up big this year, but for different reasons. Bloomberg states that in Vietnam (the leading Robusta producer), farmers have stopped trading to celebrate their new year. Arabica coffee is a different story. Central and South America have been struggling with a crop disease called, “leaf rust,” while Brazil deals with a drought that is hurting supply, via the Wall Street Journal.

Wall Street Journal CoffeeGraphic Courtesy: The Wall Street Journal

“It was the hottest January on record for parts of southern and southeastern Brazil, Somar Meteorologia in São Paulo said. Rain isn’t likely to fall in Minas Gerais state, which produced about 72% of Brazil’s coffee last year, until mid-February, said Patricia Vieira, a meteorological technician at Somar Meteorologia. The arabica-coffee harvest will begin in late April or early May.

Conab, the government crop agency, expects this year’s coffee crop to range between 46.5 million and 50.2 million bags, based on estimates released in early January. Others have given different estimates, and some analysts say it is too soon to known by how much the lack of rain will reduce the size of the crop.

Some forecasters had predicted Brazil’s harvest would be as high as 60 million bags. Bags are the standard measure of volume and on average weigh about 60 kilograms each. One bag of coffee yields 7,500 shots of espresso. “This changes the bag-count idea,” said Sterling Smith, a futures specialist at Citigroup in Chicago. “If the dryness persists, the 60 [million-bag estimate] is obviously off the table.”

Whatever the reason, this move higher might be little more than a dead cat bounce with coffee coming off a huge down trend over the past year, especially if prices are rising only because of the Vietnamese New Year (does anyone really believe that??). A few CTAs we monitor (Covenant Aggressive, Brandywine Symphony, and Sona Trading)  have nibbled at this trade, however, hoping all that space to the upside becomes a nice ‘robust’ (pun intended) up trend.

Big Picture Coffee

(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Finviz

P.S. – If you’re looking to play an uptrend in Coffee like StockTwits founder Howard Lindzon, beware the ETF cleverly named JO. These futures tracking ETFs have to pay what’s called a roll yield, which has caused them to severely underperform the markets they are designed to follow.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, 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, 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.