Best Thread COFFEE - The next big bull?

DaveT

Well-known member
Messages
434
Likes
6
In my perpetual quest to identify (and capture) the next 'big move', I have turned my attention once again to the NY Coffee market. (for a big move UP, ofcourse)

Hopefully we can start a dialogue here which 'leads' the move - and sees it through to it's zenith. :)

Briefly, some fundamental factors are as follows :

1) 4-5 years of sub 100c prices leading to closure/neglect of some coffee farms = reduced supply.
2) Forecasts for 34-36 m bags 05/06 from top producer Brazil would be bullish long-term.
3) Last Brazil Winter (mid-04) was colder than normal - some damage sustained.
4) Rains now during flowering needed for new crop development -IT IS RAINING.
5) El- Nino developing for early 2005 - could affect climate of major coffee growing regions internationally.

I believe point (5) - El Nino - could be significant.

Basically El Nino turns world weather patterns upside down - too dry where it should be wet and too wet where it should be dry.The net effects of a moderate El-Nino include drought in SE Asia (including coffee areas in Indonesia and Vietnam); also dry heat in NE Brazil.


My studies have found that most of the major spikes in Coffee over the last 30 years have been in El- Nino years : notably the last 2 major moves in 1994 and 1997.

So what could start a susained move like these historic years, fundamentally?

To alter the Supply/Demand PERCEPTION in 2005, we would need a lowish new crop forecast, followed by further weather issues (or fear of weather issues) early next year.
I say PERCEPTION, since fear of a supply shock is sometimes all that is needed to spark off a bull run (if the market has already encountered some tightening) - we've seen this in Cocoa and Crude Oil so far this decade.

Notice I haven't tmentioned the word 'FROST' yet? A bull market might CULMINATE in a frost (as 1994), not necessarily spark it off. Excessive drought/heat or high winds are much more likely to occur first, IMO.

Now for the technicals. I will only discuss the long-term charts, as I believe short-term we need to head lower again and test support.

For the MONTHLY chart , I show Coffee with a MACD study. Both lines have crossed the 0 (equilibrium line)from below, and each time this occurred historically, there was a major rally within 1-2 years. The trendlines indicate where a major rally could stall (reversed s/r)

I hve also attached the WHEAT monthly chart with the same study for comparison. My point is Wheat was in a similar set-up situation early 2002 with the chart and indicator looking about the same.

Drought and El-Nino provided the spark for Wheat in 2002. (Australia)
 

Attachments

  • cofprodcountries.gif
    cofprodcountries.gif
    15 KB · Views: 617
  • coffee macd.png
    coffee macd.png
    36.8 KB · Views: 795
  • wheat macd.png
    wheat macd.png
    38.4 KB · Views: 671
Also, here is an interesting academic paper on the COT (commitment of traders) situation throughout the bull run of 1994 :

My entry rules for position trades now incorporate some COT analysis (I am a convert). For long coffee 2005 futures, we want to see Commercial interests at a peak,(preferably net long) and Large Specs at a trough (preferably net short)

I've also attatched the current COT analysis on a weekly chart.
 

Attachments

  • COFFEE 1994 COT PAPER.pdf
    163.2 KB · Views: 1,772
  • coffee weekly COT.gif
    coffee weekly COT.gif
    32.2 KB · Views: 805
DaveT said:
Also, here is an interesting academic paper on the COT (commitment of traders) situation throughout the bull run of 1994 :

My entry rules for position trades now incorporate some COT analysis (I am a convert). For long coffee 2005 futures, we want to see Commercial interests at a peak,(preferably net long) and Large Specs at a trough (preferably net short)

I've also attatched the current COT analysis on a weekly chart.

DaveT, great piece of analyis. Many thanks. I look forward to sharing experiences in Coffee. Perhaps one day over a cappucino!


Long term Elliott Wave analyis of coffee contract seems to confirm fundamental potential for a major bull run (see chart)

With compliments of Elliott Wave Int'l:
"Prices traced out an expanding diagonal triangle Primary degree wave C decline from the May 1997 high to 4150 to complete a large expanded flat corrective movement from the 26350 high of July 1994. The new bull market underway from the December 2001 low could see prices ultimately carry above that 26350 peak. There is also evidence that a rising 9-year cycle should provide upward price pressure into at least the end of 2005."

Shorter term I count a ABC wave 2 correction whereby A completed in August at ~6800, B finished end Sept at 8600. Wave C of " should typically be equal to wave A targetting 6400 - 5900 range.
 

Attachments

  • cfq1.gif
    cfq1.gif
    14.8 KB · Views: 754
Oatman - thanks for the links.

The info states that the 2 frosts in 1994 occurred from late June - late July. This marked the acceleration or 'blow-off' phase of the 1994 bull market, looking at the monthly charts.

From Jan 1994 to May 1994 the price of coffee had already doubled (going from 70c to 140c)

There may have been drought during this time frame, but the academic study I provided also cites increased speculative activity in the commodities and rising interest rates/ fears of inflation, as reasons for increased upward price pressure.
 
June/July are the main frost months but the market gets jittery before that. Since the bad frosts a lot of the Brazil plantings have moved North from Parana, so there is hardly any risk of frost.
Better to focus on supply and quality, especially from Vietnam. These boys must sell.
 
oatman said:
1994 was the year of severe frosts and drought
http://www.coffeeresearch.org/market/frosthistory.htm


this may be of interest http://www.ico.org/index.htm

I "like" this press release, nevermind my too high intake of coffee, i think it is rather self serving and considering the enhanced heart & other disease risks perhaps touching the irresponsible:

INTERNATIONAL COFFEE ORGANIZATION
22 BERNERS STREET
LONDON W1T 3DD
PRESS RELEASE

28th July 2004

GOING FOR GOLD

Exercise plays a part in all our lives whether we are playing the occasional game of football with the children, using exercise to help fight the battle of the bulge, or, if we are elite athletes, hoping to win a gold medal at Athens this summer. So when we find that caffeine, at levels found in one cup of coffee, can both reduce the sensation of fatigue as well as enhance exercise performance, this has significant implications for us all.

There is substantial research that concludes that caffeine does improve physical performance. Its effect also appears to be widespread across a diverse variety of sports and exercises. Studies have also been wide ranging and have included well-trained athletes and relatively sedentary individuals of both sexes and different age groups.

In many of these studies, where performance was improved by the ingestion of caffeine or drinking coffee, there was the also the additional benefit of an associated reduction in the sensation of fatigue.

In a presentation at the International Coffee Organization today, Professor Ron Maughan, Head of the School of Sports and Exercise Science at Loughborough University and adviser on Sports Nutrition to the International Olympic Committee, said “ Given the various initiatives aimed at promoting physical activity to improve health, anything that encourages participation by reducing the discomfort and fatigue most people feel when exercising, has enormous potential implications for improving public health”

Caffeine, in the form of coffee, has that ability.

ENDS

For further information contact:
Sylvia Robert-Sargeant. Coordinator, Positively Coffee Programme
T: 020 7580 8591
E: [email protected]
 
Last edited:
I was reading that Caffeine is on the banned drug list for athletes. 5 cups of coffee is enough to "do" them.
 
When I said 'let's start a dialogue on Coffee' I was thinking more of the FUTURES MARKET, not the drink......

:rolleyes:
 
Some fundamental news on Brazil coffee situation -

Here is a coporate field report (dated Oct 11-13th) on the state of the Brazil arabica coffee trees from August-October. (through the first 'flowering' phase)

The report suggests that, despite recent rains, most OLDER trees have been irrevocably damaged by previous cold weather, leading to patchy flowering. (although newer -and fewer -trees show abunant flowering.)

This could lead to severe pruning and stumping (as the farmers deem these trees uneconomical to harvest), which would leave a signifiacntly shortened crop for the 2005-2006 season.

Producer sources suggest 26-27m bags of arabica. This is down from current industry estimates of 34-38m bags.

This would further tighten the Supply scenario, justifying prices above 100 in 2005, IMO.
 

Attachments

  • braziltripOCT.pdf
    529.1 KB · Views: 673
Article in today's Financial Mail on Sunday :

COFFEE MUGS

"Shoppers pay through the nose for instant coffee as the price of beans collapses."


It highlights the fact that, as wholesale coffee prices have slumped over the last 6 years, the benefits have not been passed on to the consumer of UK instant coffee, the price of which is only down 8.2% compared to 67% down on the open market....


From a contrarian standpoint, the is the kind of news story that SIGNALS the big rise is just around the corner...

IMHO.
 
This has always been the case. Multiply the retail price of a bag of unground coffee beans and see what price per ton you're paying :eek: All their money is spent on advertising to keep market share. Sod the farmer as well.
 
What's for coffee Governor?

I saw something where somebody overlayed a long-term coffee price chart with a sunspot cycle chart. It seems that coffee rallies sharply during sunspot cycle minimums.............Hey? What if it continues to happen in the future?!?!?
 
COFFEE CASH MARKET MONTHLY Chart -

The LOG chart of the monthly CASH shows clearly why this commodity is setting up for a big move in 2005.

1) An almost perfect saucer (rounding) bottom.

2) Higher lows/higher highs holding the uptrend-line (not shown)

3) 'Spike' resistance levels target 130-150 CASH INITIALLY.

Spike resistance levels (a la Jake Bernstein) are NOT conventional resistance points, but points representing the LOW of a previous Spike Bar. Theory is , a move above each level promotes a further move to the next spike resistance level.
 

Attachments

  • coffee monthly cash log.gif
    coffee monthly cash log.gif
    26.4 KB · Views: 399
COFFEE WEEKLY CHART -

Turning to the weekly (linear nearest continuous) -

There is evidence the uptrend may be accelerating :

1) Major uptrend line (from 2001 lows) was not re-tested on this year's decline.

2) Current short-term uptrend line is at a more sustainable angle than previous examples - see chart.

The closer to 45* a trendline is, the more likely it is to be sustained. (Gann theory?)
 

Attachments

  • COFFEE WEEKLY NEAREST.PNG
    COFFEE WEEKLY NEAREST.PNG
    38.6 KB · Views: 377
Top