Coffee prices and related exchange traded notes perked up Wednesday, testing their short-term resistance levels, on concerns over a production shortfall and potentially diminished quality in this year’s harvest.
The iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (NYSEArca: JO) jumped 4.7% Wednesday while the iPath Pure Beta Coffee ETN (NYSEArca: CAFÉ) gained 3.8%. Both ETNs were testing their 50-day simple moving averages. Coffee has been one of the best performing commodities this year, with JO up 48.9% and CAFE up 46.4% year-to-date.
ICE Coffee futures were up 4.9% Wednesday, trading around $1.766 per pound.
Brazilian coffee cooperative Coocafe projects that production among its members will decline about one-third this year due to the recent droughts, reports Jeffrey T. Lewis for the Wall Street Journal.
Coocafe, which represents about 6,000 growers around Lajinha in Minas Gerais state and neighboring state of Espirito Santo, calculates that about 900,000 and 1 million bags of coffee will be produced, compared to 1.5 million last year. Additionally, this year’s crop came from a larger area than last year. [Commodities ETFs Crushed]
Other areas are reporting similar production shortfalls. For instance, Cooparaiso, a cooperative of 3,200 growers in southwestern and southern Mina Gerais, diminished its forecast by 17% to 2.4 million bags, and Cocapec, which represents 2,100 growers in the Alta Mogiana region, said harvests will fall 10% year-over-year.
The drought conditions have dried coffee cherries, which resulted in fewer and lighter beans.
“The quality is pretty bad, too, with a high percentage with a lot of defects,” Coocafe President Fernando Romeiro de Cerqueira said in the article.
Rain in Brazil will affect coffee harvests for as long as four to five days and could diminish the quality of the beans, leaving the harvest with a bitter taste, reports Nigel Hunt for Reuters. Additionally, there was also concern about the effects on next year’s crop.
“Good rains now, if they materialise, will promote a premature flowering for the 2015/16 season,” an European analyst said in the Reuters article. “August is the driest month of the year, so you will not get the follow on rains in August to sustain that flowering. The 2015/16 crop is going to take another sizable hit in the next month if these rains materialize.”
iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN
For more information on the coffee market, 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.