Coffee was on 12 years low some weeks ago, cocoa had a similar period of time last year (and jumped high some months later). But this sins of the flesh are only complete for most people with another element – the sugar. And sugar is near ten years lows, too.

Dangerous elections

Brazil is by far the largest sugar producer country, the largest coffee producer and on the 7th-6th place on the top lists of cocoa producers. That means, we need to understand this country to understand the market of this products, or at least the first two.

And Brazil has serious economic and political problems. Elections will be held in October, in some Weeks, and many fear the return of the not-so-market-friendly left forces. One of the new election themes: An assassination attempt. Only some titles from the press:

– A Left-Wing Return in Brazil Is Investors' Worst Nightmare
– Brazil's Real Is in Free Fall
– Emerging Markets' Moment of Calm Broken by Brazil (only two days ago)
– Leftists Make Largest Gains in Brazil's Latest Opinion Poll
– Brazil Assets Slump as Left Advances One Month Ahead of Election
– Things Are So Dire in Brazil That Millions Are Refusing to Vote
– Brazil’s economic recovery got little traction in the second quarter amid devastating blows from a nationwide trucker strike and growing political uncertainty
– How Brazil's Economic Recovery Got Run Off the Road
(All news from Bloomberg.com via Google.com.)

It is hard to find any positive news, maybe this one: “Brazilian legendary hedge-fund manager Luis Stuhlberger is taking advantage of election jitters to step up his bet on stocks.” Blood on the streets, time to buy?

Chart courtesy of StockCharts.com

As we can observe, on this chart, too, sugar and coffee began to decline with the Brazilian Real (the surge of the USD/BRL price, red line), in late 2014. Buying sugar or coffee seems to mean buying Brazilian assets. In case of declining national currency and other economic problems, selling pressure from the side of Brazilian farmers can be even stronger.

Below support levels

Sugar and coffee are two soft commodities that are not in the crosshairs of the trade dispute, but the prices of both the sweet commodity and Java beans decline to their lowest levels in over a decade because of a strong dollar and weak Brazilian real – wrote
Andrew Hecht on Seekingalpha. “The currency markets have driven the prices of both below technical support levels and to levels not seen in sugar in a decade and coffee in a dozen years” – also him.

Since August we have seen a slight recovery in sugar prices, coffee is stagnating. To buy or not to buy? Buying sugar or coffee seems to mean buying Brazilian assets. But maybe bad news are all priced in, if we consider the storm of alarming articles in the press. Uncertainty is always bad for the markets. After the elections can come to some recovery, in the price of the Real, and with it, in some commodities. Even if leftists win.

Buy shares instead?

Commodities aren’t paying dividends, the storage, the holding is costly, even if you buy futures (see the problem of contango). Holding futures longer time can be dangerous because of the contango. Cocoa is flat at the moment (almost nothing of contango or backwardation). Sugar has a strong contango (6,5 percent for 5 months), and coffee also (4,8 percent for 3 months).

Other solution could be buying Brazilian shares. Buying commodity futures causes losses in case of contango, but shares can pay you dividends. The Brazilian country ETF, the EWZ had the second worst yield this year, fell 22 percent. (The Turkey ETF /TUR/ 50 percent). But I don’t know if it’s really cheap, in 2016, it was 35 percent lower. (Now 31, then, 20 USD.)

The obesity problem

Longer term? Sugar, sweet chocolate and sweet coffee are not healthy, in fact, can cause serious damages, ask your doctor or dietician! More and more people are knowing this and are trying to consume less. On the other side, more and more people in developing countries are getting to the so-called “middle class” and can afford more luxury goods, like coffee, cacao, chocolate (cars, gold, silver, iPhone, etc).

Conclusion?

Conclusion? Not for everyone. Sugar or coffee are moving at very low levels, but with a reason. Buying them is very risky, holding them very costly, not much better than a lottery ticket. Brazilian shares aren’t really cheap either. It’s all so dark, sad and hopeless, I think I ‘ll buy some coffee. You shouldn't.

Motto:

Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows. Jim Rogers in Investopedia

Other posts in this series:

• And The Very Best Stock Market In The World Was…
• Tales From The Crypt – Greek Blood On The Streets
• Deadly Coffee, With Cocoa Flavour
• 8 Reasons Why Gold Mines Can Rally Again
• Buying At Prices Of 2009? – Turkey
• The Curse Of The Disaster – Uranium mining

Disclaimer:

I am not a financial advisor and this content in this article is not a financial or investment advice. It is for informative purposes only, or simply to make you think, entertain, increase testosterone and adrenaline level. Consult your advisers before making any decision.

Info:

You can message me in Discord.

(Photo: Pixabay.com)