Coffee, Sweet Coffee, Make Me Rich

in investing •  8 months ago 

Sugar 10y.png
Chart courtesy of

August the 22, 2018 I posted about the coffee prices on the commodity exchange, as it was on near-12-years low by 100 USD (or 1 USD/pound) approximately. It was a good idea to mention it: the price fell some dollars more, to 94-95 in September (see on but very soon skyrocketed to 125 dollars until middle of October. (I sold it with a decent gain.)

This year, the price is falling again and tanked by 92-93 USD some days ago. It is a new 12 years low. But the drama goes on, for many weeks. For example “Coffee: One Foot In The Grave And One Foot On A Banana Peel” - wrote Seekingalpha in February. Beyond the words, there was more going on. Strong oversupply was observed. Vietnamese farmers for example stopped to sell their coffee due to low prices.

What about the real?

It seems to be obvious that the price isn’t independent of the forex prices either. Can’t be a coincidence that coffee tanks almost at the same time as EUR/USD does. Brazilian real is also relatively weak, although in September it was weaker.

Sugar 1y.png
Chart courtesy of

Some experts are convinced that the coffee price can’t go further down. Like Bernhard M. Klinzing (Frankfurter Börsenbrief, Germany.). He said in an interview last week the price is now some percent below the production costs of the farmers. But he mentioned also long time trends, like the productivity improvements of the last decades in the coffee production sector, on first place in Brazil. (Crops are more frequent in the last years than before.)

Buyer’s enemy, the contango

Chartists will say it’s foolish but I like to buy most assets on many-years-lows. Twelve years seem to be fantastic, again by coffee. Of course the price can fall further, and I don’t want to lose all, so I would only apply a 2x-4x leverage. (Perhaps on Monday.)

My real enemy will be the contango. The fact that longer term coffee prices are higher than near settlements. (At this time: 94.5, 97.05, 99.70 and 103.6 USD for May, July, September, December. That means, 2.7, 2.7 and 3.9 percent of contango, for 2 months each.) That can cause theoretically 16.2 percent of loss on yearly basis if the prices don’t go anywhere, only because of the contango.

(I wrote earlier about how strongly the contango can influence investment yields and especially commodities.)

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Is there so much supply coming online? People are already drinking so much coffee. What's going on there?

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Production methods improved. Maybe more people living in some countries like Brazil or Vietnam also means more production (more farmers). Something like this happens with cacao in Africa. If I'm right.

Commodities are an interesting spectator sport to me. As an investment it will probably always be on the too hard (or too annoying) pile for me.
Will keep an eye out for coffee in the future because this behaviour feels so counterintuitive.

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