May 6, 2011

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Commodity Coffee Prices

Commodity Coffee Prices

Commodity Coffee Prices at 34 Year Highs

Breaking News Alert: Commodity coffee prices are at 34-Year Highs, and could be heading even higher this summer as inventories are depleted and not fully replaced. Fundamentalists suggest high prices for another year or so.

In the mood for a strong, robust cup of java right about now? Makes two of us….Last month I brought up several hot penny stocks to my clients and mentioned them to move into coffee stocks… the reason being, with inflation that way it is, food prices are soaring and coffee is no exception.

On top of that inflationary pressure, caused by rampant govt. spending and a deflating dollar, coffee is subject to bullish supply and demand indicators…

Tight supplies are pushing prices higher, with inventories down for a consecutive 30 months. Global supply forecasts are down to 132 million bags, from a March estimate of 133 million bags.

As a result, commodity coffee prices are at almost 34 year highs. This has been helped by adverse weather is Brazil and Columbia – two primary markets.

Supplies are expected to remain tight for the remainder of the year, but demand, as we’ve all probably had a few cups already today, is not fading due to rising prices.

Most U.S. coffee roasters are sitting on, at most, four to eight weeks of coffee supply. Making matters worse, producers seem in no hurry to sell what little fresh supply will be coming out between now and September, says analyst Pedro Echavarria.

This creates strong market conditions for continued upside pricing pressure. And I’m sure you’ve been feeling it at your local or national coffee house….

For example, back in late March, Starbucks (SBUX) raised their grocery packaged coffee by roughly 13%. Also in March, Kraft Foods raised their prices 23% for their Maxwell House and Yuhan brands, their 3rd price increase on the year.

Now there have been many hot penny stocks in the coffee industry as well as the commodity itself which have been on fire… Soaring up over 110% year-over-year.

Take a look at the chart from a technical standpoint (Coffee: July 2011 Future):


As you can see, not only have commodity coffee prices doubled, but since a brief pullback in April, prices have jumped over 15% and are up roughly 28% this year alone!

So where do I think commodity coffee prices are headed?

Upward!

A few hot penny stocks that have been “Coffee-Catalysts” which we have given honorable mentions to as of late are Jammin Java Corp. -(OTCBB:JAMN.OB) currently trading at $3.05 from $1.50 a month ago rewarding investors of 100% gains, Baristas Coffee Company Inc. – (OTC: BCCI.PK) currently trading at $.11 from $.04 within the last week offering investors 170% gains in a short period of time and Javalution Coffee Co.- (OTC:JCOF.PK) currently trading at $.22 from $.08 within the last month providing investors in-excess of 180% gains as well!

Brazil, the Top coffee-producing country, is anticipating a small harvest, and Colombia and Central America are expected to produce less coffee as well. After many case studies…there are some forecasts showing a risk of frost, after hail this month in Brazil – great for investors, bad for consumers.

Some estimates say that this could cause as much as a 40% jump in physical prices. “There is no room for disruption,” said Rodrigo Costa, vice-president of institutional sales at Newedge USA.

Costa continued, “If Brazil has a frost, not only will we see uncharted prices but the situation might become unbearable.” According to the U.S Department of Agriculture, Brazil’s crop could be 13% smaller than last years…

With hail pummeling Brazil in April there was an estimated 50-60k bags damaged, and when you take into account the anticipation of frost this month, I think supplies will remain tight – hence, prices will continue to climb.

My take – go long on July Coffee futures. Remember, always do your own due diligence and research before investing as we do not hold a position here internally at StockRunway.com. There are PLENTY of hot penny stocks in the coffee sector that should capitalize from this chart play as well.

They’re currently trading around 305, but could jump between 15-20% (on the conservative side) before the July contract is up.

Stay tuned for further updates on this hot trade going forward….This is your Captain signing off for now! Trade Smart & Stay onboard the StockRunway!

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