Commodity Trader's Almanac 2O11

52

COFFEE BUZZ FADES IN SUMMER

Coffee typically posts a seasonal high in May. This creates coffee’s most powerful sea sonal

play under normal weather conditions, which means a lack of frost in the Southern Hemi -

sphere growing regions of Columbia and Brazil.

Traders should look to sell short on or about

May 23 and hold through August 9. This trade

has worked 26 out of last 36 years with a 72.2%

success rate.

However, this trade did not fare so well in 2006

and 2007. An ex planation as to why this market

defied the sea sonal tendency to decline in this time

period was that there was a lack of rain during the

key flower pollination stage, resulting in a much

smaller crop than expected in Brazil back in 2007.

Trade estimates were looking for 50 million kg

bags of production, but according to forecasts, that

estimate backed down to 45 million kg bags of

production. So in essence, supply declined due to poor

weather conditions, while demand remained steady.

This trade was once again profitable in 2008

and 2009, and heading in the right direction at

press time 2010. Traders can sell futures or

implement a bearish option position. As for other

trading opportunities, the chart below shows the

coffeehouse and distributor Starbucks’ (SBUX)

price line overlaid on the bar chart of coffee.

When coffee declines, historically we have

seen a price increase for shares of (SBUX). The

reverse is also true. If coffee prices ...