Saturday, April 5, 2014

The new black gold?

By Shawn Hackett

We are in the midst of one of the greatest bull markets in coffee(NYBOT:KCK14) history. Demand rationing is very likely going to be required over the next 12 months as a one in one hundred year drought event allows for two to three years of production impaired coffee crops in the number one producer Brazil.

The coffee market has no excess inventories to speak of to handle this kind of a supply squeeze as it has had in past weather shocks. In order to sufficiently ration demand, prices will need to move up to $4 per pound over the next 12 months and could easily see $6 should further weather problems surface in Brazil or Vietnam.

The recent correction offers and incredible opportunity to buy coffee ahead of the next parabolic advance.This is the bull market to play in 2014 in overall commodities.

As indicated in my last report, grain markets have moved into the sell zones highlighted and are offering fantastic selling opportunities. Acres have been bought by both corn and beans on the current rally and spring planting fears will quickly give way to ideas of record crops and significant increases in U.S. ending stocks over the next 30 days. Only a severe U.S. weather problem can turn these bearish fundamentals into bullish ones.

If there is going to be a bull market in grains it will be stimulated by wheat and rice which are both precariously close to the low global ending stocks to world trade ratios seen in 2008 that set off the food panic in Asia back then. This leaves both markets very vulnerable to any concerns over crop prospects as we head into the summer months.

Cotton(NYBOT:CTK14) and cocoa(NYBOT:CCK14) fundamental look very bearish.

Orange juice(NYBOT:OJK14) supplies in the U.S. continue to shrink and are now the second lowest since 2006. It is only a matter of time before U.S. supplies fall to decade lows given the dire production prospects for both Florida and Brazil.

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