The agriculture commodities space is often overlooked relative to energy commodities and precious metals, but within the agriculture space, coffee exchange traded notes have recently been delivering for investors.
Investors looking for tactical opportunities with softs can consider exchange traded products such as the iPath Bloomberg Coffee Subindex Total Return ETN (NYSEArca: JO).
Concerns over coffee supplies out of Brazil may have triggered a short-squeeze in the futures market, forcing large bearish traders to close out positions and buy into the rally. Managed money turned net short on coffee after a selldown of net 21,000 lots over two weeks, Agrimoney reported.
Related: Coffee ETN Pullback Could Spell Opportunity
Recent rains have sped up maturation of beans and hindered production of valuable beans such as semi-washed arabicas. Additionally, the Cooperative of Coffee Growers in the Mina Sul area said that most of the progress in coffee harvests is made from June to August and the ongoing rains will “paralyze the harvest.”
“The most recent Commitment of Traders report shows non-commercial traders added a paltry 81 new net-long positions during the reporting period ending August 30 which raised their net-long position to 37,689 contracts. Non-reportable traders were actually net sellers of 635 contracts during the same time frame lowering their net-long position to 4,591 contracts,” according to OptionsExpress.
[related_stories]Brazil is the world’s largest coffee producer and the winter there was colder than expected this year. The impact of more frost than expected in Brazil’s coffee-growing regions still is not clear on this year’s coffee crops.
Related: Agriculture ETF Rally Looks to Change Laggard Trend
JO, like other commodities products, is benefiting from the slumping U.S. dollar. However, some believe the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, is poised to rebound. That could make commodities ETFs of all varieties vulnerable to some downside.
“Looking at the daily chart for December Coffee, we notice prices staging a sharp rally since the middle of August as a “V” bottom was formed. Prices are now above both the 20 and 200-day moving averages and the 14-day RSI is strong with a current reading of 66.93,” adds OptionsExpress.
For more information on the coffee market, visit our coffee category.
iPath Bloomberg Coffee Subindex Total Return ETN
