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)
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)
