Shame on me for not doing my homework on this trade!
As I was reading the Weekend WSJ on Saturday, while fitting enjoying a french pressed cup of arabica coffee, I learned why my recent coffee trade was ill-timed. The market has been increasingly swapping out arabica beans for their cheaper robusta cousins, resulting in a record low spread between the two prices.
And who was ahead of this curve? Of course our commodity hero and guru Jim Rogers:
In a sign of robusta’s wider acceptance, the Rogers International Commodity Index last month swapped arabica for robusta futures in the basket of raw materials it tracks. An estimated $6 billion in investor funds track the index, says Tom Price, chief executive of Chicago brokerage Price Futures Group.
“Consumption is moving in that direction, and we want to be a little ahead of the curve,” said Jim Rogers, a commodity investor who designed the index.
While it’s been a bear market in arabica, it’s been a hot market in robusta. I expect that increasing demand for coffee – especially from Asia – will turn around the trend in arabica sooner rather than later. For now, it’s probably best to let the volatile arabica market find a solid bottom before exploring the long side.
Producers can’t give away arabica beans these days! (via BarChart.com)
If you’re looking for a trade to make at the moment, I would consider cotton, which appears to be once again creeping higher on Chinese demand. I do have a current long position in cotton, so we’ll continue to watch this market closely.