Global Demand Could Extend Coffee ETN Rally
February 20, 2014

Over the past month, coffee prices and related exchange traded notes have surged, and the rally could extend as elections, weather damage in Indonesia, the third-biggest grower of robusta, and the World Cup limit exports abroad.

The iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (JO) jumped 19.4% over the past week over concerns of severe crop damage in Brazil, the largest producer in the world, and gained 55.3% year-to-date. [Coffee ETN Gets Hyper as Brazilian Crops Wither]

In Indonesia, the median of five exporters and roasters estimate sales could dip to 375,000 metric tons, a three-year-low, from 450,000 in 2013, Bloomberg reports.

Meanwhile, the Association of Indonesian Coffee Exporters and Industry believe that domestic demand will jump 7.5% from 200,000, compared to the average 5% growth annually over the last three years.

The industry points to parliamentary elections in April and a presidential poll in July as catalyst for increased coffee consumption in Indonesia – campaigns typically increase consumption on all goods in Indonesia, according to Oversea-Chinese Banking Corp.

“This is a political year where food and beverage demand typically gains,” Hutama Sugandhi, chairman of the Indonesia Coffee Exporters’ Association, said in the article. Contenders “will be holding meetings and gatherings and people will drink coffee.”

Meanwhile, production in the Southeast Asian country could decline on heavy rains and wind damage in the main growing regions.

“Many people, including me, had expected that the harvest will be good,” Moelyono Soesilo, marketing manager at PT Taman Delta Indonesia, said in the article. “When we conducted a crop survey in West Lampung last month, I was surprised to find lots of flowers and small cherries were knocked off the trees.”

Additionally, the World Cup will also increase demand in Brazil.

“Soccer fans will be staying up overnight at home or at a cafe,” Pranoto Soenarto, head of specialty coffee at the exporters and industry group, said. “Wherever there’s a TV, people will watch the World Cup and drink coffee.”

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

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.