By Sell Puts
What does this say for coffee stocks breaking 52 week highs nearly every month? It might say the rubber band is stretched and the party might be getting busted soon. Remember all the cool kids leave the party and move onto the new party before the first party even ends... think GMCR, SBUX, PEET.
Now i am aware these companies will benefit from lower costs of product, the momentum of coffee prices has really helped fuel the upward movement in the coffee space. The article below states there is a major over supply of coffee.....
(Bloomberg writes) Supplies of arabica, the world’s most-grown coffee, will exceed demand by
6.67 million 60-kilogram (132-pound) bags in the year ending in September 2011, according to ABN Amro Bank NV and VM Group. That’s the most in nine years and more than six times this season’s expected surplus. Speculators including hedge funds cut their net-long position, or bets on higher prices, by 8.4 percent since Aug. 17, regulatory data show.
“You cannot justify the spike on the upside if you look at the supply situation,” said Christoph Eibl, co-founder of Zug, Switzerland-based Tiberius Group, which manages more than $2 billion in assets. “People who have been betting on coffee may lose. In the long run, fundamentals always overrule.”The article goes onto say....
The last time prices rose this fast, in a rally ending in March 2005, arabica slumped 38 percent in the next six months. Futures traded on the ICE Futures U.S. exchange are anticipating a decline next year. Contracts from March 2011 are in backwardation, meaning that nearby contracts are trading at a premium to longer-dated ones, a sign investors may be more concerned about near-term supply.
