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Coffee is produced
almost exclusively south of the equator. However, most of the worlds
consumption is done north of the equator. In other words, the seasons of
growing and consumption tend to be the same on a traditional calendar.
World Coffee
consumption is highly correlated to weather. Cold weather means higher
coffee consumption, while warm temperatures mean less. In this annually
produced crop, from a future supply standpoint the opposite is true – cold
weather means crop risk, while weather equates to higher future production.
As such, Coffee’s normal price cycle can be understood as the strongest
periods that experience crop risk and increasing demand.
* Past performance is not
necessarily indicative of future results. See disclaimer on Page 2 for
further details.
The January through
May period is typified by some frost risk to Southern Hemisphere producers
as well as strong demand from Northern Hemisphere consumers. As such, this
period tends to be the strongest. Traders should look especially closely at
May trends, for Coffee futures have broken in 16 times during the 19 year
period from 1987 to 2005, historically.
The Northern
Hemisphere months of June through September tend to see warmer weather –
lower consumption – while the Southern hemisphere crops are not at great
risk. As such prices have usually fallen under the combined weight of weak
demand and a lack of risk to future production. September tends to be an
especially bearish month as these forces are exaggerated.
October through
December tends to see slightly higher prices and a general lack of
volatility, before the growing and consumption cycle begins again in
January. |
