World by charts

In my post about commodities, I mentioned a book called ‘If it rains in Brazil, buy Starbucks.’

Now, I’ve not read the book, but it made me wonder. We know that, for instance, gold miners are leveraged to the price of the underlying. Presumably, the argument in the book is that raining means that the coffee crops will be plentiful, increasing supply, and driving down the price of coffee.

But how about non-vertically integrated businesses at the end of the chain? I know nothing about Starbucks, but let’s imagine for a second that it buys raw coffee, then turns around and retails it. Cheaper coffee means higher profit margins.

But there are so many bits in the chain — oil price and transportation costs, government price controls, contribution of raw coffee material in COGS, etc., that one has to wonder whether the relationship is so simple.

Sometimes it’s just easier to look at the charts. So I downloaded about 6000 precipitation series from all over the world. They range back from 1890 or so. And from what I see, it doesn’t look like a sure thing.

Turns out, by the way, that the economics of coffee is a much discussed topic – most probably because of the IMF involvement in the matter.

Links:

Wikipedia on the economics of coffee

Where coffee grows

Books:

If It’s Raining in Brazil, Buy Starbucks

Series of interest:

Coffee price (traded) and rain in Sao Paulo, Brazil

Coffee price (retail) and rain in Sao Paulo, Brazil

Coffee prices

Rain in Seattle and in Sao Paulo. Surprising.

Retail-raw coffee price spread and SBUX

Starbucks equity and rain in Sao Paulo. I see nothing.

Gold and miners’ equity