Tuesday, October 27, 2009

Forget Gold and Oil: Soft Commodities Are Skyrocketing; Cocoa, Sugar, and Coffee - How to Invest in Them

Please note that we track all commodity ETFs here.

The collapse of the US dollar has caused not only oil and gold to soar but also soft commodities. In particular, cocoa, sugar, and coffee have risen sharply lately. In addition to the USD issues, there are supply constraints due to political problems (cocoa), weather-related and tariffs (sugar).

Since people need to eat, so from that point of view, these soft commodities may have a lot further to go up than oil and gold. Oil and gold are also extremely manipulated by speculators. This is not today, that the speculators may not move to soft commodities as well (they already started).

Cocoa is hitting 30-year highs, and coffee is hitting a 13-month high.


Once considered luxury iteam in China and India in the past, now people have experienced them, and want them, so demand is much higher. There are coffee shops all over the place already in China.Coffee should climb into next year, depending on dollar weakness. Interestingly, Vietnam is now the world's 2nd largest coffeee (20M bags) producer ahead of Colombia (10M bags). Unfortunately, today it is commodity funds that are making the market, not supply and demand.

Says Wikinvest: "The biggest consumers of coffee are developed countries such as the United States, Germany, and Italy, which account for the majority of worldwide coffee imports, but on a per capita consumption basis countries such as Finland, Aruba, and Iceland lead the pack. Meanwhile, in emerging markets like Brazil, Vietnam, and Colombia, coffee is a major source of revenue, with exports of coffee accounting for, in some cases, over 80% of foreign exchange earnings.

Some companies affected by coffee prices:

Starbucks (SBUX)
Kraft Foods (KFT) - Maxwell House
Procter & Gamble Company (PG) - Folger's
Nestle (NSRGY)
Sara Lee (SLE)
Tim Hortons (THI)
Peet's Coffee & Tea (PEET)
Dunkin Donuts


The ETF that tracks coffee is JO:

Ino's buy/sell alerts on Coffee Dec 2009 and Dec 2010 contracts:

(click to enlarge)


Sugar is well below is all-time high. There is lots of upside potential. Major producing countries are India and Brazil. Sugar cane is of cource also used for bio-fuels s the majority of cars in Brazil run on Ethanol.

Says Wikinvest: "Around 160K metric tons of sugar are produced every year,with the largest producers in Brazil, India and the European Union. The primary driver of sugar prices is government regulation. Many governments heavily subsidize their sugar manufacturers, to "dump" cheaply-priced sugar in the market, while the United States government has tried to elevate prices within its borders by imposing import restrictions. Since sugar is a good source for ethanol production, oil prices and the demand for ethanol are also impact the international price of sugar; for example, in the first half of 2008, sugar prices increased by more than 20% in response to rising gasoline prices".

Ino's buy/sell alerts on May 2010 contracts:


The ETF that tracks sugar is SGG:


Chocolate lovers may be in a for a shock. Cocoa is currently at a 30 year high. The Ivory Coast is part of the problem and there is no stability coming to the region any time soon. Farmers make $3,200 yearly income for 1 ton of cocoa they produce on average. That is their annual income (less intermediary fees)

The top 5 cocoa producing nations are: Ivory Coast, Ghana, Indonesia, Nigeria and Cameroon,

Says Wikinvest: "Americans consume about 3 billion pounds of chocolate annually, but consume less per capita than Europeans. Sixteen out of twenty of the top chocolate consuming countries (per capita) are European. Chocolate consumption is seasonal. People tend to consume more chocolate during Winter time. Prices for chocolate have nearly doubled since 2006, due to crop shortages, and increased consumption of chocolate (especially of dark chocolate, which requires more cocoa)".

The ETF that tracks cocoa is NIB:

Ino's buy/sell alerts on Dec 2009 and Dec 2010 contracts:

(You may use INO's trade tool via a free trial through this link, it has all or most of the commodities and ETFs you can imagine).

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Deming said...

Good areas to monitor for opportunity.

Although small compared to SBUX, also have CBOU (coffee) on watchlist.

Also monitor sugar producer IPSU.

(FD: No position in either)

Thanks for ETFs.


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