price_and_volume
4 years ago
Some give-back in those JO-call-options, after 300% move
I used to live & breathe (in a trading-sense) coffee futures - fundamentals, wx, warehouse storage, etc back in the 90s. It remains a good trading market.
Coffee Prices Close Sharply Lower On Forecasts For Rain In Brazil
Coffee prices on Monday plunged with arabica at a 2-week low and robusta at a 3-week low. Forecasts for beneficial rain in the coffee-growing areas of Brazil sparked heavy long liquidation in coffee futures on Monday. Somar Meteorologia said Monday that the coffee-growing regions of Brazil would receive 20-35 mm of rain in the week starting Sep 20.
Coffee prices surged to 8-1/2 month highs Sep 4 on concern that excessive dryness in Brazil will undercut coffee yields. Maxar said last Thursday that recent dryness across the northeastern portion of Minas Gerais would not be favorable for coffee flowering. The region has received as little as 10% of normal rain in the past month. Also, the U.S. Climate Prediction Center on Thursday said a La Nina weather pattern has emerged in the Pacific Ocean, which could lead to below-average precipitation in Brazil in Q4, according to Maxar.
Coffee prices also have support on dwindling inventories. ICE-monitored arabica coffee inventories on Friday dropped to a new 20-1/2 year low of 1.117 mln bags. Also, ICE-monitored robusta coffee inventories on Aug 28 fell to a 20-month low of 10,908 lots.
The recent up move in coffee prices has been supported by fund buying. Friday's Commitment of Traders (COT) report showed that funds boosted their net-long positions in ICE arabica coffee futures by 5,866 contracts to a 4-year high of 48,450 contracts in the week ended Sep 8. Also, funds boosted their net-long positions in ICE robusta coffee futures by 2,105 contracts to a 3-year high of 15,240 contracts in the week ended Sep 8. The extreme long coffee positions by funds, however, increases the threat of long liquidation pressure.
Coffee prices also have support on data from ICO from Sep 1 that showed global 2019/20 coffee exports during Oct-Jul fell -5.3% y/y to 106.59 mln bags.
The outlook for a smaller coffee crop in Vietnam, the world's largest robusta coffee producer, is boosting robusta prices. The CEO of Simexo Dak Lak, Vietnam's second-largest coffee exporter, forecast that Vietnam 2020/21 coffee production will fall -4.8% to 1.72 MMT, citing lower coffee yields from a drought this year during the coffee tree flowering period in Vietnam's Central Highlands, the country's biggest coffee-growing area.
Robusta coffee is seeing support from tighter supplies after the General Department of Vietnam Customs reported Aug 30 that Vietnam's cumulative Vietnam Jan-Aug coffee exports fell -1.3% y/y to 1.161 MMT. The USDA's Foreign Agricultural Service (FAS) on June 10 forecasted that Vietnam's 2020/21 coffee production would fall -3.5% y/y to 30.2 mln bags.
On the negative side, the International Coffee Organization (ICO) on Sep 1 projected a 2019/20 coffee surplus as the effects of the global COVID pandemic undercut coffee demand and boosted supplies. ICO on Tuesday said that it now sees a global 2019/20 coffee surplus of +952,000 bags versus its previous forecast for a global coffee deficit of -486,000 bags.
wow_happens28
8 years ago
Weather Patterns Shrinking Coffee Production
https://www.cornucopia.org/2017/01/weather-patterns-shrinking-coffee-production/
Cornucopia’s Take: Coffee drinkers may reasonably expect production and market demand to shift as coffee country grows drier and warmer. Coffee farmers are losing crops, and sometimes trees, forcing them to consider new livelihoods.
On Slopes of Kilimanjaro, Shift In Climate Hits Coffee Harvest
Rising temperatures and changing precipitation are taking a toll on coffee farms worldwide, including the plantations around Mount Kilimanjaro. If the world hopes to sustain its two billion cup-a-day habit, scientists say, new climate-resilient species of coffee must be developed.
Melkseveck Mushi sat on the porch of his brick house on the flanks of Mount Kilimanjaro in Tanzania in October, talking about the prospects for his increasingly beleaguered coffee farm. Mushi owns 2,000 coffee trees, planted among bananas and beans on several acres of land that he inherited from his father. He’s also secretary of Okaseni, a cooperative of 80 small coffee farms around Kilimanjaro.
Alternating between English and Swahili, Mushi recalled that the region’s climate was once ideal for growing coffee, with stable temperatures hovering around 70 degrees F and dependable rainfall. But in recent decades, he said, the climate has become increasingly inhospitable. Temperatures are rising, and the rains often come too late to turn the delicate white flowers into cherries, the fruit of the coffee.
Read the link for the rest of the article
wow_happens28
8 years ago
Growth In Caffeine Still Potent, But Potential For Buzz Kills Looms
http://seekingalpha.com/article/4034442-growth-caffeine-still-potent-potential-buzz-kills-looms?auth_param=1dl5n4:1c6s8jg:af5c8606f0ceb0fa59c0763e80b64f5f&uprof=45&dr=1
Summary
Americans are taking their coffee more seriously.
Despite its image, coffee is a highly concentrated industry.
Demand is not a problem, but supply is likely to become much tighter.
A few years ago, something and a quarter would get you a decent cup of coffee. These days? Something and about 225 quarters will get you a share of Starbucks (NASDAQ:SBUX) or Dunkin' Brands Group (NASDAQ:DNKN). Even after throwing in another 20 quarters for a coffee, it's still a pretty good deal.
Long a breakfast afterthought, coffee has emerged as one of the strongest segments of the restaurant and dining industry over the last generation. It's a $48 billion business in the U.S. alone, with more than half of that dedicated to specialty coffee.1 And there's plenty of room for growth - about 500 million cups of coffee are served daily around the planet, meaning almost 7 billion people are grumpier than normal today.2,3
There are a number of factors driving coffee's moment. People are developing a serious coffee habit at an earlier age; among 18- to 24-year-olds, daily consumption has risen to 36 percent, nearly triple the 13 percent who drank coffee in 2008.4 Millennials also spend about $80 per month on coffee, well above the U.S. average of $67.5 More than other sectors of the restaurant industry, coffee shops have been in the forefront of innovation, harnessing mobile apps to drive customer traffic. One in every 5 Starbucks customers pays with a mobile phone, and the company is taking 5 million mobile orders every month.6 And while the U.S. slowly shakes off the last effects of the 2008 economic collapse, coffee has been found to be fairly resistant to hard times, losing surprisingly little ground during the Great Recession. According to the International Coffee Organization, people shifted consumption patterns, drinking about the same amount of coffee, but brewing it at home and using less expensive brands to save money.7
Concentrated Industry
Imagine the typical coffee outlet. It probably involves a barista with a man bun and liberal arts graduate degree running high-end coffee bean through an Aviatore Veloce TurboJet 100 Coffee Maker, an intimidating piece of equipment that more resembles a jet engine than a Mr. Coffee, while folk music plays softly in the background of the indie coffee shop. But that's your imagination; the reality is that coffee is a highly concentrated sector, with more than 60 percent of the U.S. retail market controlled by Starbucks or Dunkin' Brands.8
The Seattle-based Starbucks is the undisputed leader in the business, with almost 15,000 stores in its Americas division, plus another 5,500 in China, Asia and the Pacific.9 The coffee boom has pushed its net revenues to $13.3 billion during the most recent year, a 21 percent increase since 2013.10 Its stock, which traded in the low $20s as little as five years ago, has been selling in the mid- to high $50s over the past year.
On the other side of the country, Canton, Mass.-based Dunkin' Brands has seen its revenues from coffee jump nearly 8 percent to $614 million over the past year.11 The company has 8,431 U.S. outlets - almost all franchises, and nearly double the 4,815 that it reported a decade ago.12 Like Starbucks, Dunkin' stock has risen from the low $20s five years ago to the mid-$50s, although with considerably more volatility.
If there's a wild card in the coffee business at the moment, it's J.M. Smucker Co. (NYSE:SJM), an Orrville, Ohio-based corporation better known for jellies and jams than coffee. In the depths of the economic collapse, however, the company bought Folgers coffee from Procter & Gamble (NYSE:PG) for $2.95 billion.13 The acquisition has paid off, with net sales of coffee increasing 8 percent last year, largely on the strength of single-serving pods sold under a Dunkin' Donuts brand.14 Smucker also has taken aim at the growing Hispanic market, acquiring the 80-year-old Café Bustelo brand as well as Café Pilon, both mainstays of south Florida's Puerto Rican and Cuban coffee cultures.15
Investors may also want to be aware of a third player in the North American restaurant business - Restaurant Brands International (NYSE:QSR), the Oakville, Ontario-based owner of Tim Hortons and Burger King that takes credit for selling 8 of every 10 cups of coffee poured in Canada.16 While the Canadian market may not be the world's largest for coffee, Hortons has reached iconic status. Coffee is the most popular beverage in Canada, and the country leads the rest of the world in per capita donut consumption; Hortons sells both.17
Strong Demand, Tight Supply
Global demand for coffee is strong, no doubt; it's the second most traded commodity, trailing only oil.18 Investors need to be reminded that coffee is an agricultural commodity and that agricultural commodities are subject to extreme fluctuations in price.
One of the most common maladies of coffee plants is a fungal disease known as coffee rust, which was first reported in East Africa in 1861.19 The disease initially causes defoliation, as well as death or yield reductions in subsequent years. A severe outbreak in Central America during the 2012-13 growing season dropped the harvest by 37 percent in El Salvador and 20 percent in Nicaragua. The outbreak cost growers more than $300 million.20
Another growing issue involves labor. Coffee is grown in a narrow belt between the Tropic of Cancer and Tropic of Capricorn, with about two-thirds of the harvest coming from four countries - Brazil, Vietnam, Colombia and Indonesia.21 A lack of workplace standards in many countries has led to poor housing conditions, low wages and child labor, even in places like Hawaii.22 Outrage over the poor working conditions has fueled the fair trade movement. While the movement has encouraged patronage from Millennials, who frequently like making social statements with consumption patterns, the higher labor prices can cut into profits for coffee businesses.
The biggest problem for coffee, however, may be unsolvable. Wild Arabica beans, which make up about 60 percent of coffee, could be extinct by 2080 because of climate change, according to a 2012 study released by the Royal Botanical Gardens, Kew.23 The amount of land that's suitable for coffee could be cut by one-half as early as 2050, according to another study.24
This isn't to say that coffee is a bad long-term investment; it's a much sought-after product in a growing market. But investors should take a long view and be aware that coffee will always be a commodity that's subject not just to the whims of the market, but also to the whims of nature.
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