Coffee Holdings Co【JVA】株式ニュース

Jumpin' Java: A Follow Up On Coffee Holding Company
Apr. 24, 2014 11:13 PM ET | About: Coffee Holding Co., Inc (JVA), Includes: GMCR
Disclosure: I am long JVA. (More...)
Summary
seekingalpha.com/article/2164403-jumpin-java-a-follow-up-on-coffee-holding-company

Address the concern regarding CEO Gordon's selling of some of his shares.
State the case that coffee is poised to continue up in price and JVA is a good way to play the rise.
Talk a bit about the rising coffee price and why JVA may benefit.
Back on March 4th I penned an article titled, "That's Some Lava Java", in which I made the case why I thought buying Coffee Holding Co. (JVA) was a good way to play the rise in coffee. I still believe that JVA has a lot going for it, but investors are expecting too much too soon. JVA is not coffee in the same way that gold mining stocks are not gold; they don't track the commodity price in sync all the time while dramatically outperforming at other times. At the moment JVA is consolidating its gains as the coffee price continues its rise, at some point JVA will join the party.

After JVA's earnings came out, its shares shot up to a high of $8.58 on March 18th and have subsequently traded back down to fill in the gap left by the announcement. Shortly after the shares' dramatic run, coffee futures began a plunge from over $210 to about $169, with a report from MDA Forecasting that rain would fall in Brazil thereby saving the growing season. I am not sure where the MDA Forecasters got their information, or for what purpose, but through the miracle of the internet I was able to track radar of rainfall in Brazil and see that they were incorrect. Even if they were correct, growing living things is not like making a widget; just because the rain arrives, it is not like flipping a switch to ramp up production. A drought like Brazil has faced takes an entire season to overcome affecting the following year's crop as well. Now the latest reports coming out are showing that the victory dive in coffee prices was apparently premature as the rains now will be overwhelming as an El Nino is forming. The situation seems to be going from bad to worse, which could be very beneficial for coffee suppliers that have inventory, a pipeline to more beans and are able to hedge. The net result is that coffee futures have rebounded smartly to the upside and are $212.70 as I pen this tome awaiting more confirmation - crop reports are due in May a couple weeks from now.

In the meantime, I want to address a couple issues that have popped up regarding JVA. The first item is the insider selling of shares by Andrew Gordon, the CEO of Coffee Holding. I took it upon myself to contact Mr. Gordon, who graciously answered my questions. Regarding his 105B-1 planned sale he had the following to say: "Diversification was the sole reason for sales, not my view of future company performance. Also, I did cancel the plan rather than sell additional shares at this time." Furthermore, it should be noted that while Mr. Gordon did sell 124,198 shares, he still holds 216,183 shares which is around $1.6 million of skin in the game. Moreover, it should be noted that Andrew's brother David Gordon, who has access to the same internal information, did not register or sell a single share of his 363,185 shares roughly $2.5 million of equity (at today's prices).

The next topic is the concept that some of JVA's earnings were derived from hedging. In the last earnings report with coffee trading at multi-year lows of roughly at $1.20 a pound, the company was still able to earn $.22 per share - not too shabby. It appears that $.10 of those earnings were attributable to hedging strategies and there are those that complain about that. There is no way to make all people happy all the time. When coffee was declining into the multi-year low, the Gordon brothers were on the wrong side of the hedge and it cost them and shareholders; yet when they right the ship and are correct they are criticized. Realistically, when your business involves a commodity that can have price swings it is only prudent to have some hedges to help normalize earnings. In my communication with Mr. Gordon he pointed out that hedges are needed to help minimize risks. He went further stating: "Disclosures to say we have problems when (coffee) prices fall quickly but tend to benefit in times of rising prices (or at least market stability)."

Another area of concern for investors appears to be the idea that rising coffee prices are going to hurt JVA, but between hedging and inventories purchased at lower prices there is at least a modicum of protection. Looking at the latest 10-K for JVA the company was carrying almost $9 million in inventory which we know was acquired before coffee started its rise so it was likely purchased well below the $2 mark. The company also was showing another $620 thousand of prepaid green beans yet to be roasted in the pipeline. This lower cost inventory will end up going to JVA's bottom line in the future as the margin has expanded due to the rise in coffee.

Changing gears a bit, I then asked Mr Gordon, "In the past, Coffee Holdings has relied on long-term relationships for both procurement and sales of beans\coffee, but with the changes in the market is the company looking to move to more contractual-based relationships?" His answer was short and to the point simply replying, "We currently do both".

As a follow up I pose the following: "Between inventory of beans that was disclosed in the 10K and current agreements that Coffee Holdings has in place with favored suppliers do you feel that the company will be able to contain costs in a rising price environment as not to shrink margins for an extended period as the drought and El Nino play out?"

Gordon responded, "This information will come out in our next Q2 report." The question may have been a little to close to non-public information at this time but at least we should have answers to that question during earnings.

I noticed that the DTS8 Coffee Company, mentioned in my prior article as one of the methods through which Coffee Holdings is looking to diversify their customer base beyond the key customer dependency with Green Mountain Coffee Roasters (GMCR), was profiled by S&P Capital IQ Factual Reports on April 21, 2014. DTS8 Coffee Company has the exclusive license to roast and sell JVA coffee using their premium brands like Don Manuel into most of Asia. The fact that they made S&P's radar could be indicative of the company making inroads in the Asian market, which dovetail's nicely into JVA's growth and diversification plans. I did query Mr. Gordon with regards to this development, but he was unable to comment at this time because it was not public information.

The conclusions I draw are that JVA will continue to do very well as long as coffee prices are moving up or stable. One also has to remember that JVA sells the commodity, but is not the commodity, therefore it will not necessarily jump the same day as coffee does nor will it necessarily fall if coffee pulls back. JVA will trade on its own timetable and is subject to the mentality of equity players who tend to have a different mindset than an individual who might be purchasing commodities.

I believe that the Gordons have a handle on the business and are making the right moves to address the problems that plagued them over the past couple years. Some of those problems were in their control, some were not such as falling coffee prices. I believe that the Gordons have righted the ship and everything from coffee price to weather affecting coffee harvest will push JVA stock up over the coming months. Please remember that companies with a market cap this size can be volatile, especially given the limited number of shares and small float, so it is not for the faint of heart. All one has to do is look back at the performance of JVA the last time coffee peaked out at about $2.50 a pound the shares rocketed to $35 each.

Assuming coffee keeps going up as I believe it will due to Mother Nature, JVA's earnings will continue to grow and demand for its shares will drive the price higher than most expect, then you will see what they mean by Jumpin' Java!

Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Jumpin' Java: A Follow Up On Coffee Holding Company
Additional disclosure: I did converse with Mr. Gordon the CEO but I did not receive any proprietary insider information only clarifications. I have no relationship with JVA or Mr Gordon other than being a shareholder in the company. All information other than quotes from Mr. Gordon are either readily accessible on the internet or hyperlinked. The views and analysis are my own and I am long the shares.

Sad story of coffee farmers

When coffee rust attacked the farms clinging to the volcanic slopes above this Mayan town, the disease was unsparing, reducing mountainside rows of coffee trees to lattices of gray twigs.

During last year’s harvest, Román Lec, who grows coffee on a few acres here, lost half his crop. This year, he borrowed about $2,000 for fertilizer and fungicide to protect the plants, as he did last year. But the disease returned and he lost even more.

“There are nights when you cannot sleep, thinking how to pay back the money,” said Mr. Lec, 65.

A plant-choking fungus called coffee rust, or la roya, has swept across Central America, withering trees and slashing production everywhere. As exports have plunged over the last two years, the effects have rippled through the local economies.

Big farmers hire fewer workers to pick the ripe coffee cherries that enclose the beans. Smaller farmers go into debt and sell livestock or tools to make up for the lost income. Sales fall at local merchants. Teenagers leave school to work on the farm because their parents can no longer hire outside help. At the very end of the chain are the landless migrant workers who earn just a few dollars a day.

“If you frame this in terms of everyone that is connected to the economics of coffee, it’s a very serious problem,” said Roberto de Michele, a specialist at the Inter-American Development Bank who is based in Guatemala City.

The coffee rust has spread far and fast, driven by higher temperatures in the region that have allowed the fungus to thrive at higher altitudes. Many experts say climate change is largely to blame for the shifting weather patterns.

The economics of the business have added to the farmers’ plight. After years of low coffee prices, smaller farmers could not afford to replace aging coffee plants, which have proved more vulnerable to the rust’s attack.

“There was nothing to hold it back because the farms were in very poor shape,” said Maja Wallengren, a coffee expert based in Mexico.

The trouble here is just one of several factors that are pushing up prices in the global commodity market, increases that may carry over to supermarket shelves and the specialty coffee houses that sell the high-grade arabica coffee for which Central America is known. Market prices have risen 70 to 80 percent since November, driven mostly by drought in Brazil, the world’s largest producer.

In Central America, the pain is acute. Four million people there and in southern Mexico rely on coffee for their living, according to the Inter-American Development Bank. Twenty percent of the half-million jobs in Guatemala directly tied to the crop have already disappeared, estimated Nils Leporowski, the president of Anacafé, the country’s coffee board.

The rust outbreak has pushed many families to the edge of survival.

“Roya has exposed the depth of the social and economic problems in terms of people’s vulnerability to the market and to climate change,” said Peter Loach, the Guatemala director of Mercy Corps, an aid agency. “What makes it different and complicated is that it’s a slow-onset natural disaster over two to three years.”

Even in good years, José Obispo Tax Talé, 34, had to scrimp to feed his eight children. In the past, his work as a day laborer on coffee farms would give him just enough money to rent land, buy fertilizer and grow corn for food.

Since the coffee rust hit, farmers are hiring fewer workers and paying less. So Mr. Tax had to borrow about $1,300 to grow corn. “Sometimes, you get desperate,” he said. “You want to work, but there is none.”

This year, the lean season, when food supplies run out for the poorest farmers, started two months early, according to the Famine Early Warning Systems Network, a monitoring service, because of falling coffee earnings and reduced corn yields over the last couple of years. Forecasts of irregular rainfall this summer raise additional concern.

“Year after year, these families are confronted by layers of vulnerability,” said Anne Valand of the World Food Programme, who estimated that as many as 300,000 Guatemalans could need emergency food aid later this year. “Bit by bit, the layers are becoming thinner.”

As the coffee rust has taken hold, farmers have been spending much of their time and money trying to fight the disease by spraying fungicide, replacing or cutting back old plants, and managing the shade trees that filter sunlight and appear to reduce the spread of the rust.

“People are scared of the roya,” said Nicolás Leja, who farms about seven acres in plots in San Antonio Palopó, a nearby municipality. He pruned his trees and sprayed fungicide, but it proved futile. He has lost as much as 60 percent of his production over the last two years.

Instead of hiring four workers for the harvest as he usually does, he relied on extra labor from his 18-year-old son, who put off plans to study medicine.

The changing fortunes of Guatemala’s small farmers raise the question of whether some of them should continue to grow coffee at all or instead should switch to food crops. Some say they could not make the change even if they wanted to.

“Beans and corn don’t grow well here,” Mr. Leja said, pointing at the steep hillside. “The coffee income is very important. It pays for corn and beans.”

The latest epidemic of coffee rust began in Central America three years ago. It spread rapidly last year, prompting most governments to declare states of emergency. Last year’s harvest fell 15 percent in Guatemala, and neighboring countries had losses as big and even bigger. Export figures suggest that Guatemala’s harvest this year has fallen an additional 10 percent.

Nobody has escaped. Guillermo Ríos, a midsize producer who grows coffee on 37 acres near the Mexican border in Huehuetenango, said he had sprayed fungicide four times and managed to limit the outbreak to just 10 percent of the plantation.

“My priority is to rescue what I invested,” he said in a telephone interview. But his profit was minimal, and the higher costs have halted his plans to add plants on additional land he owns. He will hire fewer workers than he expected.

While rust hit Central America in the 1970s and 1980s, the outbreaks were contained at lower altitudes. This rust outbreak has advanced to the highest altitudes, including the steep slopes here around Lake Atitlán. Rising temperatures and extreme weather, like flooding, have encouraged roya’s spread, said Ana R. Ríos, a climate change specialist at the Inter-American Development Bank.

With the changing conditions, the industry is intensifying efforts to breed varieties that are resistant to rust and heat stress while maintaining their quality. But the research is only beginning, and it may take 25 or 30 years before resistant hybrids reach farmers, said Leonardo Lombardini, the deputy director of World Coffee Research at Texas A&M University.

“The problem is that farmers are struggling and also the climate is changing rapidly,” Mr. Lombardini said. “The window of climate conditions for arabica is relatively narrow.”

Researchers are also growing plants from seeds collected all over the world and sending them to different countries for field trials to see where they thrive. That should give farmers who do not have much money to invest some assurances that when they replace their old trees, the new ones will be productive.

In the meantime, the priority is returning the farms to health.

Guatemala’s agriculture ministry provided small farmers with fungicide last year, although many complained that it reached them too late or that it was not enough. Others simply sold it. The government has increased the amount of money in a fund to provide low-interest loans to $100 million and extended it to 2026. The fund had only $28 million when the measure was approved last fall.

“The coffee here is positioned for its quality like the wines of France,” said José Sebastián Marcucci, Guatemala’s vice minister of agriculture. “The majority of coffee comes from the small producers. I hope that they can be motivated.”

With help from Anacafé, the government is showing farmers how to prune and replace their trees. They also plant beans and vegetables between the coffee seedlings to provide food while they wait three years for them to start producing.

More and more farmers are listening. Servando Santos, 56, the manager at the San Miguel Integrated Agricultural Cooperative in Tzampetey, said he fought off the rust by spraying fungicide, using fertilizer and controlling the shade over his plants. “You have to adapt to the roya,” he said. “You have to make friends with it.”
http://www.truthabouttrade.org/2014/05/06/a-coffee-crop-withers-fungus-cripples-coffee-production-across-central-america/