CEA Monthly Issue – April 2015

Commodity: Coffee

It has been a rough start of the year for coffee.  The luscious bean is down 17% year-to-date and down 35% over the past six months.

Why such a steep downturn?

Let’s back up for a minute…

As you may remember, coffee jumped to multi-year highs in early 2014 as investors reacted to worrisome drought conditions in the world’s largest coffee producer- Brazil.

As 2014 wore on, drought conditions persisted along with investors’ bullish enthusiasm for coffee.  The commodity ultimately ran to $2.20 a pound in mid-October.

But then the bottom fell out of the market.  While Brazil did experience a steep downfall in 2014 coffee production, other leading coffee producing nations like Colombia and Vietnam picked up the slack.

And that’s where we find ourselves today, with coffee trading near the late 2013 low of $1.00 a pound.

But here’s the deal…

There’s still considerable uncertainty surrounding Brazil’s coffee output.  In fact, INTL-FCStone recently downgraded their 2015 coffee crop estimates for the South American country.

The respected commodity broker sees 2015 production falling to 44 million bags, which is an 8% drop from the estimated 48 million bags produced in 2014.

Other commodity funds see the same thing…

Estimates vary but some experts see Brazilian coffee output dropping as low as 40 million bags, which would be a 16% drop from 2014 levels.

What’s this information mean for coffee?

With the commodity trading at yearly lows, we’re likely near an intermediate term bottom. 

I’ll provide more information on this trade in the monthly update.  For now, just focus on buying the iPath Bloomberg Coffee Total Return ETN (JO) at any price under $25.50.

Here’s a chart…

Technically Speaking:

As you can see, JO is forming a potential bottoming pattern in the $24.00 area.  This burgeoning technical situation gives us a solid low-risk opportunity in the coffee ETN in coming months.

 

WHAT TO DO NOW: 

iPath Bloomberg Coffee Total Return ETN (JO) is trading at $24.93 

Buy JO up to $25.50 per share  

Our profit target is $30.00 or more 

Risk Control Price is $22.40 (or a 10% stop loss from your entry point)

 

Category: Commodity Trading