Don, the following should give you an idea why people "hold " commodities....As for the rainy day...you are exactly right if you are a perma Dollar/USA bull stay away from Gold .....that is of course if you think that Asia would not recover...If it does bets are off....you may want to consider buying bike (doen not require gas)..
Brazilians stockpile coffee against devaluation
11:41 a.m. Sep 15, 1998 Eastern
By Andrew Tarnowski
LONDON, Sept 15 (Reuters) - Coffee growers and exporters in Brazil are positioning themselves in case the financial crisis looming over the country brings a devaluation of the real currency, coffee traders and analysts said on Tuesday.
There are signs that growers and exporters have begun holding on to their coffee stocks as a dollar hedge against a possible devaluation, they said.
Growers are likely to be the biggest beneficiaries from any sharp fall in the currency but exporters also stand to make a windfall profit and they are getting ready to make the best of it by filling their warehouses with as much coffee as they can.
The exporters are helped by the fact that Brazil is bringing in one of its biggest ever coffee crops at an expected 36 million 60 kg bags, up from 18-22 million last year. About 85 percent of the harvest has been brought in and there is now more coffee around than at any other time of the year.
''As soon as devaluation occurs there is a windfall gain for exporters who bought at the old price, which is why they are trying to increase the amount of coffee in their warehouses at the moment,'' said a British-based analyst.
Lawrence Eagles, head of commodity research at global futures trader GNI Ltd, said there were already signs that Brazilian coffee was being held back by exporters. ''They don't want to sell,'' he said.
But the impact of the stockpiling on the world market has not been big because world demand is currently not strong, he said. With a huge Brazilian crop being harvested, roasters in developed countries are happy to live off stocks, knowing that supplies will improve in the next few months.
Far from helping to stimulate prices on the London coffee futures market, the Brazilian stockpiling is actually depressing prices because the exporters are hedging their coffee by selling futures contracts, analysts said.
''That's what's been putting the market under pressure,'' said a London coffee futures trader. London robusta coffee futures have eased by just over $100 to under $1,600 a tonne in the last week of trading days.
But if and when devaluation comes, analysts said growers and exporters will have huge incentives to sell immediately. Only the threat of further devaluations of the real would make them continue to hold back -- as Vietnamese farmers sat on their coffee last year.
For the world coffee market, the Vietnamese and Indonesian experiences last year could be seen as dry runs for a possible Brazilian scenario, analysts said.
When Vietnamese farmers saw devaluation coming they just sat on their stocks as a currency hedge with dollar value as the dong was continually devalued. Their Indonesian counterparts did the same as the rupiah crashed.
However, GNI's Eagles said the net result on the coffee trade of a Brazilian devaluation was likely to be bearish as it would give growers and exporters incentives to sell without increasing foreign demand much.
Not only would Brazilian growers receive more reals for their produce, but devaluation would effectively lower the price floor set for them by massive state funding, encouraging them to sell before prices fell.
Although a devaluation would make Brazilian coffee cheaper abroad, analysts did not expect a major increase in world demand due to a lack of elasticity in consumption patterns for the commodity in the developed world.
While the increased price of coffee in local terms would sharply reduce Brazilian consumption, making more coffee available for export, there would be only a small increase in demand in developed countries, Eagles said.
''Consumption (of coffee) is not dramatically affected by price movements,'' he said.
The more dramatic prospect in the current scenario was Brazil's possible role in a worldwide financial crisis because the country was seen as a major chink in the world economic system, Eagles said.
''If Brazil goes, most of Latin America goes, and then China and India would find it hard not to devalue. So it would bring devaluation in the whole of the developing world.
''People are also concerned about the high level of Brazilian debt and the amount of it held abroad, especially in the United States. Because a Brazilian devaluation could have a big impact on the U.S. economy,'' he added.
Copyright 1998 Reuters Limited. |
