Brazil accounts for one-third of the globe’s coffee supply, and the recent damage to the Arabica crops will cut the country’s production by 10 million, to 45 million bags next year, reports Ho. [Coffee ETNs Rise After Smucker Cuts Prices]
The biggest risk to an investment in a commodity such as coffee is a recessionary climate. This would weaken demand. JO has slumped 30% year to date and 45% in the past 12 months. JO trades below both its 50- and 200-day moving averages, which is very bearish, reports Ho. [Coffee ETNs Rally 15% in Oversold Bounce]
“Also, the likelihood of El Nino-reduced Robusta crops in Vietnam and Indonesia next year will further exacerbate this impending supply squeeze,” Shawn Hackett, president of Hackett Financial Advisors wrote. Commercial traders — the so-called smart money — have loaded up on coffee contracts. Hackett says he hasn’t seen them this bullish since 2003 and 2008.
iPath Dow Jones UBS Coffee Subindex Total Return SM Index ETN
Tisha Guerrero contributed to this article.