The largest exchange traded note tracking coffee futures is down more than 40% the past year but some technical analysts think the unloved commodity is overdue for a bounce.
The $24.8 million iPath Dow Jones-UBS Coffee ETN (JO - News) is trading at the lowest level since 2010.
JO is down 50% since September, according to Gary Gordon, president of Pacific Park Financial.
“Granted, I wouldn’t expect to pay 50% less for my cup of caffeine simply because the beans are cheap. Yet I might expect some of our most beloved establishments to pass on a tiny bit of savings, if only due to price wars with competitors,” Gordon wrote. “As far as I can tell, however, none of the food giants have reduced retail coffee prices.”
Currently, the long decline in coffee prices has pushed the commodity down to key multiyear support levels, says Chris Kimble at Kimble Charting Solutions. This is a contrarian trade because bullish sentiment on coffee is at the lowest level in at least four years.
The iPath Pure Beta Coffee ETN (CAFE - News) is another exchange traded note covering the commodity.
However, these ETNs are based on coffee futures, not the spot price, so they can be hurt by so-called contango.
“Keeping track of the movements of coffee futures can be a tall ordeal. As a soft commodity, coffee is well known for its volatility that sucks a number of traders in,” writes Michael Johnson at CommodityHQ. He listed seven coffee traders that investors can follow on Twitter for insight and analysis on this market.
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