Forget gold and buy coffee beans

A poor harvest in Colombia has triggered in a boom in prices.

By Jamie Dlugosch Sep 8, 2010 4:30PM

Gold prices are hitting record levels, but there may be a better place to put your money.

 

With coffee prices hitting a 13-year high, the Wall Street Journal is hinting that investors might be better off owning coffee beans.

 

A second-straight poor coffee bean harvest in Colombia has triggered in a boom in coffee bean prices. The move higher may just be a supply-related event, but demand for coffee around the world is rising. This move in coffee may be the beginning of a bull run that has yet to run full course.

 

Starbucks (SBUX) has cut back on its aggressive global branding strategy, but it's far from exiting the market. 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.

 

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.

 

Investors must be careful to not chase returns. Much of the gains in coffee may have already been reached.

 

The same was said about gold when the price was $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.

 

Now more than double that price 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.

 

(If you would like to receive my free market commentary, send an e-mail to jdlugosch@gmail.com.)

 

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