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Contributors Coffee Companies are About to Face More Headwinds

If I were a CEO of a coffee company, I’d sure want to have a great coffee-hedger on my staff.

If you go to Starbucks or any other coffee shop, prices pretty much stay the same day-to-day. So, there are two main ways to make more money: Either sell more cups of coffee, or keep your wholesale coffee costs low, thus keeping your profit margins wider.

Ideally, you want to do both. But there are times where the second one can make or break your earnings. Let’s take a look at the price of coffee and you’ll see how volatile it can be.

Coffee Doubles One Year, Cuts In Half the Next

See larger image

When this coffee ETF, which tracks the price of the commodity itself, was falling from $80 a share down to the $30s, any coffee company could do well because the price of their product was falling. It naturally opened the door to wider profit margins.

However, it is when coffee prices rise that you find out if you’re worth your salt is when coffee’s price. When your product doubles in cost inside of a year, then we see what you’re made of.

Well, if you have a good hedger on staff, then you can lock-in low prices for longer and avoid much of the higher costs. Some coffee companies will do a better job at hedging their costs than others, and that’s why it’s easier to own a coffee stock when the price of coffee is falling, rather than when it’s facing the headwinds of rising prices.

When coffee prices are rising, it can be a better time to profit from the actual commodity itself by owning an ETF like JO. When prices are falling, you can buy into companies like Starbucks or Green Mountain.

Right now, coffee’s price is coiling up into a symmetrical triangle. It will soon break out. If it heads higher, it’s better to own the commodity ETF (JO) than it would be to own Starbucks or Green Mountain Coffee.

Have a nice day!


Sean Hyman
Editor, Commodity Trend Alert 

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