The coffee exchange traded note is surging, with coffee prices experiencing their largest monthly gain since August 2011, as dry weather conditions in Brazil, the world’s largest grower, jolts supply concerns.

The iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (NYSEArca: JO) was up 4.5% Friday, breaking through its 200-day simple moving average. JO is up 9.6% so far this year.

ICE coffee futures rose 4.3% Friday, trading around $125.2 per pound.

Joel Widenor, the director of agricultural services at Commodity Weather Group, anticipates parched weather conditions in northeast Sao Paulo and southwest Minas Gerais, Brazil’s top producing areas for arabic beans, over the next two weeks, reports Marvin G. Perez for Bloomberg. Widenor also pointed out that rainfall has been 50% below average over the past 30 days.

“Trees are being stressed from lack of rain and high temperatures” this month, Luiz Fernando de Mello Monteiro, a broker at H.Commmcor Ltda., said in the article. “That will reduce yields this year.”

Early forecasts put Brazilian production above 60 million bags this year, and now, analyst expect 52 million to 55 million bags.

“The drought is telling us this market is not going down,” Luiz Eduardo de Paula, the owner of H. Commcor, said.

Traders are now speculating that the harsh weather conditions will persist into February and potentially cause crop losses, further dampening supply and pushing up coffee prices.

Consumers are already feeling the higher prices as they buy their morning jolt. For instance, Starbucks Corporation (NasdaqGS: SBUX) has fallen 8.3% since the start of the year.

iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN

For more information on coffee, visit our coffee category.

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.

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