much will you pay for your Starbucks with South American
The softs complex continues to
heat up with coffee at the epicenter of a major
weather market spike. The ongoing drought in central
Brazil that has engulfed the month of January
promises to continue through at least the first
half of February.
is a drought that mainly affects coffee (NYBOT:KCH14),
sugar (NYBOT:SBH14) and orange juice (NYBOT:OJH14).
The grains are largely unaffected by this so far
but speculators may buy them as a sympathy trade.
Any rally in corn or beans that ensues should
be sold with aggression.
the market with the greatest potential production shortfall
impact with orange juice second and sugar a distant
market has not traded a legitimate weather market since
the drought of 1999. Of the droughts seen in the past
45 years only the years of 1989 and 1990 saw a January
as dry as the one just seen. Coffee production fell
by 34% during that time in Brazil.
will be focused on the February weather patterns but
should the current dry forecasts for much of February
hold, then a major weather spike can be expected.
all the performances of drought price spike years of
the past in coffee and in looking at the peak relative
price relationships of coffee prices to the Brazilian
real suggest a legitimate weather spike drought move
could reach $2 per pound before exhausting itself.
A slide presentation
is included in the complete report (linked below) to
give you a more visual representation of the current
state of the coffee market and the various considerations
on how to view the current drought in Brazil in the
pivot points of $1.32 and $1.50 per lb. offer resistance
in the near term.
there are reasons to be a longer term bull on coffee
as increases Asian demand meets head on with stagnant
Brazilian coffee production.
on link for full report