Exchange traded notes that track the price movements of coffee brewed up solid returns in August. However, projections of large harvests and slowing coffee demand in light of high prices may begin to depress coffee prices.
The iPath Dow Jones-UBS Coffee ETN (NYSEArca: JO) and iPath Pure Beta Coffee ETN (NYSEArca: CAFE) are up 182% and 14.7% over the last month, respectively. JO has been trading well above its 50-day and 200-day moving averages since mid-August.
Rabobank analysts say “strong” consumer buying has helped support coffee prices, but “fundamentally, little has changed in the coffee markets to warrant the current price rises,” according to Agrimoney. [Coffee ETFs Rise After Smucker Cuts Prices]
In early August, frost damage was suspected of damaging crops Brazil, a large producer.
Additionally, heavy rains during the flowering period in Colombia may result in another low output season.
According to the U.S. Department of Agriculture, Central American producers will yield 13.4 million 60-kil bags of coffee in the 2011-12 season, the highest since the 1999-2000 crop, reports Isis Almeida for Bloomberg. Additionally, Rabobank analysts calculate that Vietnam, the biggest producer of robusta, will yield a record 22 million bags.
“Coffee is down on concerns the price has moved too high, too fast and commercial interest could be tailing off given high levels,” remarked Keith Flury, an analyst at Rabobank International in London.
iPath Dow Jones-UBS Coffee ETN
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Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.