A Coffee Conundrum Heading Into 2020 | ETF Trends

Among commodities exchange traded products, gold and palladium, among others, stole the show in 2019, but the iPath Series B Bloomberg Coffee Subindex Total Return ETN (NYSEArca: JO) may merit a look in 2020.

Coffee is one of the most volatile commodities and JO reflected as much in 2019 with plenty of supporting evidence in recent weeks. JO is lower by almost 3% over the past week but maintains a December gain of 12.50%. That has the coffee ETN higher by almost 12% year-to-date.

“Coffee’s stunning rally in late 2019 took many traders and analysts by surprise, creating tension over where prices go from here,” reports Bloomberg. “Arabica beans have surged 28% since the end of September, on pace for the best quarterly performance since 2014 and the biggest gain among major commodities in the last three months. The move came after futures in May tumbled to the lowest in 13 years, driving some farmers out of the industry.”

Coffee Call

Due to uncertainty about weather and supply deficits or surpluses, there are dueling views of what 2020 will bring for coffee prices.

“Prices recovered after adverse weather threatened production in Brazil, the world’s top grower and exporter,” according to Bloomberg. “Analysts began predicting the market would shift into a supply deficit, helping to drive the rebound. But the size of the gains were surprising as a measure of volatility surged to the highest in more than four years. That’s lending a cautious tone to the outlook for early 2020.”

JO could offer some near- to immediate term upside in 2020 due to expectations of a supply shortfall, which is the prevailing wisdom among commodities market observers.

Related: Commodity ETFs Strengthen on Improving China, Global Outlook 

“Rabobank International sees a world supply shortfall of 3.5 million bags in the 2019-2020 season, while Citigroup Inc. predicts 4.7 million and sees a 2020-2021 deficit of 1.3 million bags. A bag weighs 60 kilograms or 132 pounds,” notes Bloomberg.

Robust beans, which are used in instant coffee and espresso, are suffering under unrelenting heat across Espirito Santo and Bahia, Brazil as average temperatures this month are as many as 8 degrees Celsius, or 14 degrees Fahrenheit, above the average in the main producing states, Bloomberg reports.

For more information on the commodities market, visit our commodity ETFs category.

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.