FUTURES FILE: Coffee market in withdrawal

In early May, coffee prices reached their highest levels since 1997. Weather problems in Colombia and predictions for uncomfortably tight supplies in 2012 caused futures prices to rise above $3 per pound.

Later that month, Starbucks announced plans to raise the price of the packaged coffee it sells in its stores by 17 percent. Warehouses in Europe, the continent where the most coffee is consumed in the world, doubled java orders, predicting an even–tighter supply picture in 2012.

The story currently is much different. Brazil, the world's largest producer, is said to be on track to produce 55 million to 58 million bags, shattering the record of 48.5 million bags produced in 2002. Concerns over the economies of Europe and the U.S. prevail, dampening expectations for strong demand. These factors, plus increasing supplies in coffee–rich Vietnam, have caused the market to collapse significantly from 2011 highs.

As of Friday morning, coffee futures for March delivery were trading at $2.16 per pound, down 30 percent from May highs.

Hogs Piggyback on China

Hog prices charged higher this week, rising 2.3 cents per pound, or 2.6 percent. The rally was sparked by hopes that China, the world's largest pork consumer, would continue to increase its imports of U.S. pork. Currently, around one in four U.S. hogs is destined to be exported. U.S. exports of pork have been rising as international markets increase their consumption of meat, while U.S. consumers have shifted their diets toward chicken.

With hog prices nearly 40 cents per pound cheaper than cattle, some analysts think the hog market could continue to gain ground as it plays catchup with record–high cattle prices. As of midday Friday, lean hogs for April delivery were worth 89.7 cents per pound while April live cattle were trading at $1.29 per pound.

Stock Rally Sparks Investors

Stock index futures blasted higher this week with the Dow and the S&P trading above their July highs and the Nasdaq 100 trading into new high ground for the past 10 years.

Many investors and speculators prefer trading the index futures as they represent large groups, or sectors of stocks as opposed to individual corporate issues. Transaction costs are generally lower and the price changes of the stock markets are continuously reported in the media, making these futures contracts easy to follow.

Opinions are solely the writer's. Walt Breitinger is the president of Breitinger & Sons LLC, a commodity futures brokerage firm in Valparaiso, IN. He can be reached at (800) 411–3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.