Like so many commodities exchange traded products, the iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (NYSEArca: JO) has struggled this year, shedding more than 6% over the past six months. However, coffee futures and JO have stormed back in recent weeks, prompting calls that coffee could be among the more bullish plays in the commodities space.
If the last El Niño is any indication, nonfuel commodity prices could rise in the months ahead. According to the International Monetary Fund, nonfuel commodity prices jumped an average 5.3% in the 12 months following the announcement of an El Niño event as the threat of lower production brought on by inhospitable conditions weighed on prices.
Below-average rainfall in coffee-growing Vietnam, Indonesia and Central America could lower crop yield expectations. Warm weather could reduce the risk of frost in Brazil, the largest coffee producer in the world, and could diminish crop output as well. [El Niño Commodity ETF Rally?]
However as 2015 enters the final quarter of the year, we are starting to see some bullish movement for Coffee prices. Dry conditions are being cited by analysts for the recent rebound in Coffee prices, as several key Coffee growing regions, most notability Brazil, are experiencing less than ideal weather conditions. In addition, low Coffee prices the past few years have cut into producer’s profits and, in turn, have forced many Coffee growers to forgo or reduce investment in fertilizers and maintenance, which could have a meaningful effect on production in the coming seasons,” according to Options Express.<