Investing in Commodities: The Secret to Investing in Coffee
By Ian Cooper
Brazil, the world’s largest producer and exporter of coffee, begins harvesting its coffee crop in June. The beginning of that harvest also marks the beginning of Brazilian winters, which can pose a frost danger to coffee crops and send coffee futures through the roof.
Typically, you’ll see speculators buying coffee companies and coffee futures around May in hopes that a frost threat will spike coffee prices. With that in mind, you’d want to buy coffee companies in early May as speculators step in on hopes of a frost.
Then, you’d want to short the same coffee companies at the beginning of July in the event there is no frost. In addition to Brazilian harvest pressures, lower coffee consumption rates also tumble in summer months.
According to the Commodity Traders’ Almanac 2007, “As harvest begins, supply on the world market becomes more available. This influx of supply comes at a time when major consuming countries in the northern hemisphere are going into summer – a time when coffee consumption tends to decrease.”
Even more interesting, notes the Traders’ Almanac, the “dynamic of increasing available supply and slowing demand in most years is readily apparent by the fact that September Coffee futures have declined 16 times (84.2%) in June during the 1997 to 2005 period.
Read more on the detailed plays in the Death Cross Trader special report, “Secrets of a Death Cross Trader.”
Ian L. Cooper
Editor, Death Cross Trader
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