Brazil Drought Supporting Coffee ETNs, with Futures Trading at 2-Year High

ETF Trends

Drought conditions in Brazil has pushed up coffee exchange traded notes, with coffee futures trading at two-year highs.

The iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (JO) and iPath Pure Beta Coffee ETN (NYSEArca: CAFÉ) both gained 3.4% Thursday. Coffee has been the best performing asset so far this year, with JO up 83.1% and CAFE up 76.0% year-to-date. [Brazil’s Bad Weather Revives Coffee ETN Rally]

ICE coffee futures were up 3.1% Thursday, trading around $2.061 per pound.

Coffee output from Brazil is expected to dip 4.5% year-over-year to 47 million 60-kilogram bags of beans this season, Reuters reports. The Coffee Crops Council warned that output this year could dip as low as 40.1 million bags.

Some believe the drought induced crop damage could leave a lasting effect.

“People are waking up to the fact that this isn’t a one-year issue, it’s at least a two-year issue,” an European analyst said in the article. “The drought is potentially undermining the whole structure of production of the coming years because the trees are so severely weakened.”

Coffee prices have surged this year on the record heat in January and February, along with continued forecasts for dry weather in Brazil, the world’s largest producer of coffee. Minas Gerais, which produces half of Brazil’s coffee, estimates that as much as 45% of the crop may have been damaged due to the dry weather.

However, traders may begin to temper further bets on coffee this year as Brazil’s coffee industry associaton Abic announced that the country has enough coffee inventories in storage to accommodate demand for this year, reports Gustavo Bonato for Reuters.

“The harvest is going to be large enough to supply the domestic market and exports,” Nathan Herszkowicz, executive director of Abic, said in the article.

iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN

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For more information on coffee, 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.

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