Forget Gold Prices, Buy Coffee

by Jamie Dlugosch | September 9, 2010 9:52 am

Gold prices may be hitting record levels, but there may be a better place to put your money: coffee beans

Coffee prices are hitting a 13 year high, with a second consecutive poor coffee bean harvest in Columbia has resulted in a boom in coffee bean prices. The move higher appears to be mostly a supply related event, but demand for coffee around the world is rising.

As such this move in coffee may be the beginning of a bull run that has yet to run full course.

Starbucks Corp (NASDAQ: SBUX[1]) has cut back on its aggressive global branding strategy, but they are far from exiting the market. And in fact the company mentioned the increase in coffee beans wouldn’t – so far – result in price hikes for consumers. Nope, coffee is here to stay and consumers across the world are becoming addicted and avid drinkers.

The article mentions that the market for coffee may get a reprieve from the harvest in Brazil, but then goes on to say that any reprieve will be short lived.

That suggests that harvest issues aside, there is a strong demand story in the coffee market.

From an investment perspective, the idea of using the coffee bean market as an alternative to stocks that seem to be moving sideways has its merits.

As always investors must be careful to chase returns. Much of the gains in coffee may have already been reached.

That said, I recall the same thing being said about gold back when gold was pushing $500 per ounce. At the time such a level was considered high and represented the best price seen in the metal over a 20 year period.

With gold trading for more than double that price today, investors at the so called $500 peak have made out like bandits.

If you believe as I do that the coffee trend will continue to flourish owning coffee beans may make sense even at 13 year highs.

The one big difference with gold is that farmers could saturate the market with more supply, something that cannot happen easily in the gold market.

Come to think of it I may just investigate whether coffee trees can thrive in my own northern climate of Minneapolis. If so, I might just have to start harvesting some trees of my own.

As of this writing, Jamie Dlugosch did not own a position in any of the stocks named here. If you have a stock portfolio of at least $500,000 and would like to receive Jaime’s free market commentary, send an e-mail to[2].

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  1. SBUX:
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