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Thursday, March 6, 2008

Trade Idea: Long Coffee, War in Columbia?

EES Trade Logic

Coffee will continue to be consumed regardless of market price. The average New Yorker spends $6 USD per day on coffee. Unstable political situation in Columbia can cause coffee price to temporarily skyrocket on the world market. Conflict is not imminent, but Venezuela is moving troops to the border. A freeze on Columbian coffee is enough to cause the price to explode. Here is our research:

http://www.researchwikis.com/Coffee_Market_Research


Background

Coffee is produced from roasted seeds or beans and is a widely consumed beverage. Coffee consumption of coffee was recorded in 9th century Ethiopia and spread from there through Africa to Egypt and then to Italy, from there being introduced to the rest of Europe.

Coffee beans are picked, processed, and dried. The major producing countries are in Asia, Africa and Latin America. Coffee seeds are roasted at a temperature of about 200 °C, allowing the sugars in the beans to caramelize. The bean changes color and flavor is drawn out. Next, the beans are roasted to a light, medium, or dark brown color depending on the desired flavor. After roasting, beans are ground and brewed in order to create the beverage coffee.

Effects on human health are continually debated. Some studies indicate that coffee may reduce the risk of certain diseases but a negative side effect, an increase of stress, due to excessive intake, is also noted.

Market Structure

Coffee is one of the most heavily traded commodities in the world and ranks sixth by value in the world. In 2000, the coffee trade was worth US $33 billion. Coffee demand dropped in 2001 to 2003, with growth falling to 1%. Small and medium sized producers suffered the most from this drop, while the growth in retail sales mitigated the effect on coffee retailers.
When prices of green coffee rise, producers make profits while the retailers lose margins. Conversely, when green coffee is relatively cheap, the distributors and retailers earn higher profits. Rarely do the large players financially integrate the two operations, that of production and retailing. There have been periodic attempts to regulate and better control the coffee trade but trade arrangements consistently fail and the trade is currently subject to market forces.
Commercially, two types of coffee banes are in highest demand - Coffee Arabica and Coffee Robusta, the latter of which has seen strong growth due to increase in instant coffee sales. Brazil and Vietnam are world's largest producers of robusta coffee.

Industry Definitions

Drip coffee: 115–175 mg

Espresso: 100 mg

Brewed: 80–135 mg

Instant: 65–100 mg

Decaf, brewed: 3–4 mg

Decaf, instant: 2–3 mg

Market Metrics

United States Exports and Imports

Total US imports for the 4th quarter 2006 totaled 5.773 million bags, down 7.4% from the 3rd quarter's 6.232 million bags. Compared with last year same quarter, US imports were up by 2.1% from 5.653 million bags.
Average retail prices in the 3rd quarter 2006 decreased by nearly one percent over the third quarter, decreasing to $3.14 per pound from $3.17. Compared to the year-ago period, prices were down by 19 cents or 5.7%. The United States consumes one-fifth of all the world's coffee, making it the world's largest consuming country.
World Market

The US Department of Agriculture's December estimate for 2006-007 was that world coffee production had increased to 128.6 million bags, up 4.9 million bags from its June 2006 estimate. Production in 2006-07 was estimated at 13% above the 2004-05 period.
World coffee exports totaled 7.75 million bags in July 2007, an increase of 1% compared with the volume of 7.67 million bags recorded in July last year. Total exports in the first 10 months of coffee year 2006-07 (Oct-06 to Jul-07) were up by 13.3% from the same period last year, totaling 81.52 million bags compared to 71.94 million bags in the prior year.
Total annual production of coffee was estimated at approximately 6.8 million tons in 2007. It is usually sold in bags of 60 kilograms. 

The top global producers of coffee are as follows:


 

Country                   Annual Production


 

Brazil                35 million bags

Columbia            11 million bags

Vietnam                     11 million bags

Ethiopia            4.5 million bags


There are several other key producing countries. The following countries each produce more than 2 million bags annually:


Colombia, traditionally, the second largest coffee exporter, slipped to second place in the early 2000s behind Vietnam. This country, a relative newcomer to the world coffee market, dramatically boosted production through the 1990s and by the early 2000s had overtaken Colombia.

But you can see from the following chart how the top 3 dominate everyone:


Industry Players

The market leader in coffee production with Nescafe as its flagship product. The company's chief markets are the United States, France, Germany, Brazil, the United Kingdom, Italy, and Japan. Popular coffee brands include Nescafé, Taster's Choice, Ricoré, and Ricoffy. Roasted and ground coffee brands include Nespresso, Bonka, Zogas, and Loumidis.

Philip Morris spun off Kraft Foods, one of the world's largest coffee producers, in June 2001, while retaining 84 percent ownership. Philip Morris first entered the coffee market by purchasing the world's largest coffee roaster, General Foods Corporation, in 1985. Kraft Foods' coffee brands in the United States included General Foods International Coffees, Gevalia, Maxim, Maxwell House, Sanka, Starbucks (under a licensing agreement), and Yuban. Its international brands included Carte Noire, Gevalia, Grand' Mère, Kaffee HAG, Jacobs Krönung, Jacobs Milea, Jacobs Monarch, Jacques Vabre, Saimaza, Kenco, Maxwell House and others.

Formerly Sara Lee Coffee & Tea Worldwide, a business segment of Sara Lee. Caters to both the retail and the foodservice sectors around the world. Sara Lee's European coffee brand is Douwe Egberts and its South American brands are Caboclo, Cafe do Ponto, and Pilao. Its SENSEO coffee pod system, sold throughout Europe and in the United States, brews single servings of frothy-style coffee.

Trends and Recent Developments

Coffee prices in mid 2007 have slumped 15% from their recent peak in late 2006. Not surprisingly, retail coffee companies have not been passing along the savings to consumers.


http://www.researchwikis.com/Coffee_Market_Research


 


http://futures.tradingcharts.com/chart/CF/38

http://youtube.com/watch?v=MMXRjF7ERHQ Comerciales viejos Juan Valdez. Juan Valdez' Old Commercials

Summary: Venezuela is moving troops to the border with Colombia after a Colombian raid across the Ecuadorian border targeting Revolutionary Armed Forces of Colombia camps. Venezuelan President Hugo Chavez needs something to increase his stature at home, and a wave of anti-Colombianism in Venezuela could serve that purpose. However, Chavez cannot afford to turn this into a real fight.

http://www.stratfor.com/analysis/venezuela_chavezs_calculations_colombia

Ecuador, Venezuela, Colombia in war of words
CTV.ca, Canada - Mar 3, 2008
FARC has been in a state of civil war with Columbia since the 1960s. Both Canada and the United States consider it to be a terrorist organization that is ..
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