Deadly Coffee, With Cocoa Flavour

in investing •  6 months ago

I’m hunting. Hunting investments which are on 10-15 years low or close to it but have some real, let’s say, intrinsic value, are useful, or are paying a real and good dividend, interest. (Like Steem? ;) ) Because, after falling so deeply, many of them showed a big turnaround in the past, and if I catch the right price, and time, I can earn big. (If not, loose a lot, of course.)

Short sellers attacking

In this days, coffee futures are trading near 12 years low, what turned the blinking alarm lights on for me. “Buy me, buy me…” – are telling me the voices. But it is not so simple.

052 coffee stooq2.jpg
Coffee futures
When the price of some commodities is very low, this happens never without good reason, but mostly due to overproduction, or extremely low demand. In this case, in Brazil, the crop will be very rich this year, and “managed money” – institutional investors, like hedge funds – shorted a lot of coffee this year:

14 August, 2018, Managed Money: Long:Short, 33,528:133,229
Commodity Futures Trading Commission, Commitments of Traders data

To store or to sell

They are waiting for producers to sell even lower, and this producers are trying to deposit coffee and wait for better prices, as the report of Financial Times wrote August 4. But this companies or farmers have to pay salaries, interests of credits, storage costs and other expenses.

Benefits of contango

And short sellers have an interest-like income from contango, that means, near futures prices are lower than longer settlements. At the moment, December price (KCZ18) at 100.90 Dollars, March, at 104.25, 3.3 percent higher. Annualized, 3.3*4=13.2 percent.

That means, if nothing would happen an entire year (futures prices remained the same), short sellers earn approximately 13.2 percent on contango. And the same yield, but in negative terms, have to suffer the long positions, that means, the buyers will loose, –13.2 percent. (Without calculating fees and other expenses.) (I Wrote earlier about how the contango influences investment yields.)

Short covering time unknown

The relatively Strong dollar and weak Brazilian real have the effect that Brazilian producers have more income in local currency terms, and are willing to sell earlier. That can help short sellers, also.

One good thing in large short selling interest is, than if short sellers close positions (buying), prices will skyrocket. That can happen with some bullish news (social unrest or political instability in producer countries, bad weather etc.), or also if contango disappears.

Hazardous and foolish

So, buying coffee now, is a very risky investment, despite the low price. It is possible prices will fall further, you can’t know exactly where the bottom is. But I think contrarian like this people:

If buying equities seem the most hazardous and foolish thing you could possibly do, then you are near the bottom that will end the bear market. (Joseph Granville)


Things Always Look The Worst Near The Lows Seekingalpha

The cocoa case

The case of coffee reminds me of the cocoa market in April 2017, as its price bottomed by 1767 USD. Those was at a low of almost 10 years. The price was moving about 10 months in similar low levels, by about 1800-2000 USD, and later, this year skyrocketed. Topped in April 2018 by 2940 USD, 66 percent higher as the lowest point one year earlier.

053 Cocoa Stooq.jpg
Cocoa futures
Sure, catching exactly the bottom and sell on top, is practically impossible. If you win half of such price moves, you can feel lucky.

Bargain hunting is not for jittery investors.


Bottoms in the investment world don't end with four-year lows; they end with 10- or 15-year lows. Jim Rogers in Investopedia

Other posts in this series:


I am not a financial advisor and this content in this article is not a financial or investment advice. It is for informative purposes only, or simply to make you think, entertain, increase testosterone and adrenaline level. Consult your advisers before making any decision.


You can message me in Discord.


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Once it's stored and the item is scarce in the market, there's definitely gonna be a provision for hike in price🔥