Exchange traded products indexed to coffee have been in free-fall since mid-2011 on rising supplies of the commodity and strong harvests, but prices are nearing a critical technical juncture and could finally be due for a bounce.
Over the past year, coffee futures have declined more than 40%, notes Chris Kimble at Kimble Charting Solutions.
Additionally, traders have grown very bearish on coffee, which sets up the potential for a powerful countertrend move if commodity prices can find their footing. [Will Coffee ETNs Perk Up in 2012?]
Coffee prices had been in a decade-long rally until last year’s collapse. Kimble points out that coffee is now nearing a 10-year support line and its 50% retracement level, where bounces often occur, according to technical analysis.
The exchange traded notes are small — JO has a market cap of only $28.5 million.
Coffee prices fell sharply on Wednesday and triggered a circuit breaker at the ICE futures exchange. The decline brought prices near 18-month lows, according to Reuters.
Coffee buyers are holding back on purchases because they think prices will fall more, the report said.
“It’s difficult for there to be significant buying when all people are thinking about is that there’s going to be a bumper 2012-2013 Brazilian crop,” Coffee Network analyst Andrea Thompson said in the article.
“Buyers of coffee from Brazil, the world’s largest producer, are getting a bigger discount for beans as the new-crop harvest approaches,” Bloomberg News said in a separate report this week.
iPath Dow Jones-UBS Coffee Sub Index Total Return ETN