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Expert Call: COFFEE PRICES MAY MOVE MUCH HIGHER FROM HERE

Expert Call: COFFEE PRICES MAY MOVE MUCH HIGHER FROM HERE - Call Marketing Image

 

Hedgeye Macro is hosting an expert call tomorrow (Thursday, August 21st) at 11:00 a.m. EDT to better understand the developing risks to Brazilian coffee production capacity next year and beyond. Brazil accounts for more than 1/3rd of global coffee production, and the damage from an unprecedented drought in the first three months of 2014 may have caused irreparable damage to a much larger portion of the 2015-16 crop than believed by consensus.

 

Our expert speaker will be Judith Ganes-Chase, founder and president of Ganes Consulting, an independent agricultural softs commodities research and consultancy firm. Judy worked on the sell-side for 20 years before founding J. Ganes Consulting in 2001.

Call Objective:

  •  With irreparable damage from last winter’s ---(BRAZIL SUMMER) drought already manifest, consensus opinion is much too optimistic on Brazil’s production capacity into next year and 2016
  • Lifecycle of the Tree: The idea that above average rainfall can restore soil moisture and rehydrate the trees allowing the lack of vegetative growth to be offset is simply not true. Production estimates for a 2015-16 crop based on the coffee from trees that have not yet flowered are PREMATURE
  • End users may be able to hedge OTC through financial intermediaries, but the assumption that the crop paid for in the future is locked-in and available is an issue. Scarcity may be a problem --> ESPECIALLY OF BETTER GRADES OF COFFEE.
  • Relevant Tickers: CAFE, JO, SBUX, DNKN, MCD, MDLZ, GMCR, THI  

Call Participant Instructions:

Participant Dialing Instructions

Toll Free Number:

Direct Dial Number:

Conference Code: 998836#

Materials: CLICK HERE

 

About Judith-Ganes Chase:

Judy has over 25 years of experience covering the agricultural softs space. Prior to founding Ganes Consulting in 2001, she spent most of her career as a senior softs analyst at Merrill Lynch and Shearson Lehman. Her most recent post was as the Director of News and Research at InterCommercial Markets.

 

 Ms. Ganes-Chase is a contributing member to Elliott Associates, Gerson-Lehrman Groups Council, and Coleman Research Group. She is also a participant in the ICE (Intercontinental Exchange) research program and makes regular contributions to several industry-specific publications: Specialty Coffee Association of America, National Coffee Association, and the International Women’s Coffee Alliance (IWCA).    

 

Hedgeye Macro Team

 



Daily Trading Ranges, Refreshed [Unlocked]

Takeaway: This is a complimentary look at our proprietary buy and sell levels on major markets, commodities and currencies.

This note was originally published August 20, 2014 at 07:27 in Daily Trading Ranges. Click here to learn more and subscribe.

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BULLISH TRENDS

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BEARISH TRENDS

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Early Look

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VIX, Europe and US Treasuries

Client Talking Points

Vix

Before the last five days, remember when the SP500 had two up days in 12? Trending volatility does. Friendly reminder that front-month VIX is A) bullish TREND (11.84 support) and B) coming off the most asymmetric low (10) you’ve seen since 2007.

Europe

A no-volume-v-bottom-bounce to lower-highs but also below all of my intermediate-term TREND lines (DAX, CAC, MIB, etc), so that intermediate-term context is more important than Europe starting to go down again this morning.

 

UST 10YR

If you’re bullish, you should be bullish on the Long Bond; it’s crushing every major US equity index YTD (Russell 2000 is down for 2014), and the 10yr has immediate term downside to 2.34% into Janet pushing out the dots at Jackson Hole

Asset Allocation

CASH 54% US EQUITIES 0%
INTL EQUITIES 12% COMMODITIES 6%
FIXED INCOME 24% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
HOLX

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.

BOBE

The level of activism in the restaurant industry has never been more rampant.  In the past year alone, we’ve seen CBRL, DAVE, DRI, BJRI and BOBE attract largely uninvited attention from these investors. BOBE has a long history of mismanagement, evidenced by flawed strategic rationale, an excessively bloated cost structure and severe underperformance relative to peers.  Fortunately, its poor operating performance presents a tremendous opportunity. We believe activist investor Sandell has identified significant, largely feasible, opportunities to enhance shareholder value.  Particularly, we see tremendous upside value in selling the foods business, transitioning to an asset light model and refocusing capital allocation.

TLT

Fixed income continues to be our favorite asset class, so it should come as no surprise to see us rotate into the Shares 20+ Year Treasury Bond Fund (TLT) on the long side. In conjunction with our #Q3Slowing macro theme, we think the slope of domestic economic growth is poised to roll over here in the third quarter. In the context of what may be flat-to-decelerating reported inflation, we think the performance divergence between Treasuries, stocks and commodities may actually be set to widen over the next two to three months. This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position.  Fade consensus on bonds – especially as growth slows. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove.

Three for the Road

TWEET OF THE DAY

“If you can’t contextualize macro moves on multiple factors and durations, you shouldn’t do macro.” -- @KeithMcCullough

QUOTE OF THE DAY

“One can be a crucial ingredient on a team, but one man cannot make a team.” – Kareem Abdul-Jabbar

STAT OF THE DAY

$100.53, the closing price Tuesday of one share of Apple stock, which hit an all-time (split-adjusted) high.


LEISURE LETTER (08/20/2014)

Tickers: BYI, LVS, MGM, SGMS, WYNN, MAR, MTN

EVENTS

  • Aug 26:  Horseshoe Baltimore Opening
  • Aug 27:  BYI 2Q earnings
  • Aug 28:  Hollywood Dayton Raceway Opening
  • Sept 1/2:  Revel closes

COMPANY NEWS

AMAYA – Full Tilt began offering casino gaming to a small section of the player base. Amaya plans on pushing casino games as well as mobile offerings to the entire player base of Rational in the coming year. PokerStars will begin to offer casino games in Italy as well as Spain in the near future.  Amaya is also considering a sportsbetting business as well and has set aside cash to develop a sportsbook in-house or may considering buying an existing business.

Takeaway: The power of private equity meets online gaming.

 

BYI & SGMS – Received notice of early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to Scientific Games’ pending acquisition of Bally. The acquisition is expected to be completed in early 2015.

Takeaway: Early approval to the merger.

 

GTK:IM – During fiscal year 2014, the Indiana Lottery generated $254.6 million of net income. However, GTECH was required to produce net income of $256 million to the Hoosier Lottery during the 2014 fiscal year under the terms of its contract. As a result, GTECH must remedy the short fall with a $1.6 million make whole payment. 

Takeaway: The challenge of the lottery business becoming more evident as the competition for gaming wallet share intensifies. 

 

LVS & 1928:HK (Macau Business Daily) Venetian Macau has been authorized by the government of the Special Administrative Region to increase the number of exchange kiosks in the Sands Cotai Central casinos. The decision was taken on 14 July but has only just been announced in the Official Gazette. Since the beginning of 2013, The Venetian Macau has had permission to operate 9 exchange kiosks but now that number has been raised to 12. These kiosks buy and sell bills and coins in legal currencies as well as buying traveler’s cheques. The kiosks must comply with the rules defined by the Macau Monetary Authority

 

MGM – (Las Vegas Review Journal) In a letter dated July 28, 2014 but only recently released by New Jersey Division of Gaming Enforcement, MGM Resorts agreed to pay $150,000 while Tracinda will pay $75,000 in lieu of a formal complaint being filed in the matter as a means to resolve old issues as part of an effort by MGM Resorts to regain its Atlantic City gaming license. MGM Resorts is expected to appear in front of the New Jersey Casino Control Commission next month to seek reinstatement of its gaming license.

Takeaway: The relicensing process is almost complete.

 

WYNN & 1128:HK – doubled the 2014 annual cap on billing of design services by Wynn Design and Development LLC from HKD78.8 million (US$10.17 million) to HD156 million (US$20.13 million). Wynn Design and Development provides the group with design services in connection with the company’s projects in Macau, including the “development, design and construction oversight” of Wynn Palace and enhancement and renovation works at Wynn Macau.  The current three-year agreement with Wynn Design and Development and the Wynn Resorts group is due to expire on December 31

Takeaway:   Higher costs for Wynn Macau

 

MAR & PCLN Lodging Frenemies – (tnooz) Priceline via Bookings.com is quietly offering more "white label" services directly to hotel companies. The white-label offering is custom tailored to each particular hotel brand specifications. Marriott recently enlisted the Booking.com white label service with it's entire network of properties located in Italy having the entire search and booking functionality powered by Booking.com.  

Takeaway:  MAR more focused building the OTA relationship 

 

MTN – The ongoing lease disagreement discussions between Park City Mountain Resort and Talisker may be reaching an amicable conclusion.  At the end of last week the two parties requested a 9-day mediation extension through August 24. Originally, the mediation deadline for PCMR/Powdr Corp and Vail Resorts/Talisker to reach an agreement was Friday, August 15. If not agreement is reached, parties will present their arguments during a hearing in front of Judge Harris of the Utah Superior Court on August 27. 

Takeaway: Could a resolution be at hand?

 

INSIDER TRANSACTIONS:

H – Reissa Hozore, EVP, General Counsel and Secretary, on August 16, exercised (at expiration) 3,765 restricted stock units and simultaneously sold 1,218 shares at $60.09/share.

 

WYN – two transactions:

1) Thomas Anderson, EVP and Chief Real Estate Development Officer, on August 14, sold 34,459 shares at $79.50/share in the open market and now owns 60,985 restricted shares.

2) Franz Hanning, President and CEO Wyndham Vacation Ownership, on August 15, sold 18,409 shares at $80/share via a 10b5-1 trading plan and now owns 114,140 restricted shares.

Takeaway: More insider selling at WYN.

INDUSTRY NEWS

Japan Gaming Expansion

(Kyodo News) Hokkaido governor Ms. Harumi Takahashi toured Singapore’s Resorts World Sentosa casino property on Monday to have a better knowledge of its operations.  Ms. Takahashi also met with Jerry See, the head of Singapore’s Casino Regulatory Authority, the city’s gaming regulator. 

 

(Japan Times) Railway Keikyu Corp. said it is aiming to open an integrated resort facility featuring a casino to tap an increase in foreign tourists. Subject to the enactment of gambling bills, Keikyu plans to build the facility on Yamashita pier in Yokohama or in Tokyo’s Odaiba waterfront area before the 2020 Olympics. Keikyu set up a project team and formed a syndicate for the project with trading houses, developers and local businesses. It estimates that total investment will reach ¥500 billion to ¥600 billion (US$4.84 billion to US$5.8 billion).

Takeaway:  As we get closer to Fall 2014 decision time, Yokohama has been under the radar.


Ho Tram Strip (Forbes) profiled Chien Lee, his business background as well as his investment in Ho Tram Strip via NewCity Capital as helping to redirect and foster the business and marketing strategy of Vietnam's first integrated resort as a result of his prior roles with 7 Days Group and Asia Entertainment and Resources Ltd, now known as Iao Kun Group. Hokkaido is Japan's second largest island, the largest and northernmost of Japan's 47 prefectures, and its capital is Sapporo.

Takeaway: Time will tell if Ho Tram will be successful - especially given the increasing threat of competition from Japan and South Korea.


McCarran Airport Airlift – VivaAerobus, a Mexican low-cost carrier, will begin service between Monterrey and Las Vegas in December with four nonstop flights each week.

Takeaway: A positive for continued increases in visitation, especially from new feeder markets.

 

New California Native American Compact – The California legislature enacted a gaming compact with the Karuk Indians which will allow the tribe to build a casino in Yreka, California.  Yreka is located on Interstate 5, 22 miles south of the Oregan and California state line or 52 miles south of Medford, OR as well as 98 miles north of Redding, CA.  The casino will feature 1,500 slots and is scheduled to open autumn 2015.

Takeaway:  A needed boost for 2015 slot sales but how many will be used slots?

MACRO

Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye

Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.


CHART OF THE DAY: Coffee Up Over 64% YTD

CHART OF THE DAY: Coffee Up Over 64% YTD - COD 08.20.14

 

In terms of asset price leadership this year, one of the more outstanding performers has been coffee, which is up more than 64% on the year-to-date.  Tomorrow, August 21st at 11am, our commodities macro analyst Ben Ryan is hosting a conference call on the outlook for coffee, which postulates, “Coffee Prices May Move Much Higher From Here” with expert Judith Ganes-Chase. 

 

The call is obviously relevant for a lot of different equities, including CAFE, JO, SBUX, DNKN, MCD, MDLZ, GMCR, THI.  

 

Contact sales@hedgeye.com to learn how to get access. 



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