Coffee Traders' Forum - A Discussion about Coffee Futures Trading
Coffee Traders Discussion Forum
Thank you Phil and Alf. I understand spikes, and, more interestingly, gap openings which I greatly miss. I recall in I believe ‘97 I was on the floor and we had a 40 cent gap opening. I wish I could remember the specifics but it doesn’t matter. I included Wheatsoy’s post which to me represents the only possible way that we could have a dramatic spike, gap opening, in our market. So Alf, please tell me as our resident meteorologist what you think of Wheatsoy’s comments. I personally have a lot of respect in Wheatsoy’s analyses but if what he predicts doesn’t come to fruition, then what? Possibly we’ll have an isolated frost in the south with minimal consequences that we won’t know for a year. But I still don’t understand “commentary relevance”. Why is commentary ever irrelevant? If the market were to open 40 cents higher, there would be a great deal of commentary.
Brazil Coffee Frost Potential 2018
Date: 4/13/2018, 8:39 am
We have done an exhaustive study about the frequency of severe Brazilian coffee frosts over the last 130 years with regards to timing patterns, weather variable correlations and solar cycle preconditions that have had an uncanny ability to foreshadow these highly anomalous events that have had and will continue to have profound economic, humanitarian and geopolitical consequences for the global coffee industry.
Our work suggests that the probabilities for a severe/black frost event in 2018 that has dire consequences for Brazilian coffee production and for coffee roasters at large are as high as they can get.
Some of the considerations that go into our conclusions on this are as follows:
1) The 20 to 25 year Brazilian Frost Cycle
2) The El Nino-Southern Oscillation state correlation
3) The Correlations with Solar Cycle trough periods
4) The correlations with sea surface temperatures off the Southeast coast of Southern Brazil
5) The enhanced weather volatility amplification trends surrounding the 220 year recurring Grande Solar Cycle Minimum
All the signatures that have preceded every major severe/black frost are in place. The only one that remains is the sea surface temperature regime off the SE coast of Brazil during the key months of June/July 2018.
Fresh sea surface temperature forecasts by the two most accurate models that were released this month both show the exact sst signature required for the big frost years.
We feel that the above aforementioned have all aligned for a heightened probability for a devastating and debilitating frost in the core Brazilian coffee regions in the period from late May 2018 through mid-August 2018.
In fact, historical precedent pinpoints two specific weeks as the time-frame most likely for a major frost occurrence.
This sets up an historical and legendary call option buying opportunity for investors at a time when coffee price volatility and call option volatility premiums are at historic lows. With speculators up to their eyeballs net short the coffee market, the set up is in place for an epic short covering massacre.
Of course as always with such a long cycle like the 20 to 25 year frost cycle in Brazil, by the time the next big frost is likely no one believes it will ever happen again and have convinced themselves that climate has permanently changed and the the northward migration of coffee plantations has largely removed the risks.
That is simply not true. We did a detailed analysis of the 1994 and 1975 frosts and looked at the areas that were impacted and the current core coffee acreage is not out of arms way. We have seen very bizarre weather this past year given the lower sunspot output of the Sun with very unusual bouts of cold in unusual places.A Grande Solar Cycle Minimum which has not been seen in 220 years which has now begun is not to be taken lightly.
Maybe history will not repeat as it only has to rhyme but 130 years worth of data crunching suggests one should be on high alert. The costs of protecting upside price risks are small relative to the damage one would incur by remaining complacent and getting caught missing an historical event like this.
Needless to say, we would strongly suggest that coffee end users/roasters and producers alike protect upside price risks to a maximum degree using a combination of forward cash contracting for roasters (For producers holding some cash sales back), buying futures contracts and owning call options.
We do not post often and we are not ones to cause undue concern or fear and we are sure we will be criticized by many on this board but we have done the research and we have done the work and we would be doing everyone a disservice to not let you know what our findings have concluded.
A blessed day to all.