While rain would have been welcomed in the drought-ravaged coffee crops of Brazil, forecasted El Nino storms could do more harm than good, bolstering coffee prices and related exchange traded notes.
The iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (NYSEArca: JO) is the best performing exchange traded product this year, surging 94.6% year-to-date.
ICE coffee futures has also gained about 94% this year and now hovers around $2.14 per pound. [Brazil Drought Supporting Coffee ETNs, with Futures Trading at 2-Year High]
Somar Meteorologia anticipates an El Nino weather pattern will cause further damage to crops in Brazil, the world’s largest grower of coffee beans, Bloomberg reports. [Brazil’s Bad Weather Revives Coffee ETN Rally]
“The last thing we want now in the harvest is rain,” Mauricio Miarelli, a 60-year-old grower from Campos Gerais, said in the article. “If we get El Nino and rain, the quality and output will drop significantly.”
The storms during the peak harvesting season would cause beans to fall prematurely and diminish the quality of the beans picked.
“Given the weather challenges, we will see a bullish-price movement for a while longer,” Paul Christopher, chief international strategist at Wells Fargo Advisors, said in the article.
The U.S. Climate Prediction Center calculates a 65% chance of El Nino conditions while MDA Weather Services estimates a 70% chance by June. The weather service also believes that the heavy rains could reduce the quality of next year’s harvest.