Coffee Bulls Are Back!

| February 3, 2014 | 0 Comments

coffeeAfter a three-year hiatus, coffee bulls are officially back!

The luscious commodity is making fantastic gains thanks to quickly changing fundamental forecasts.   As a matter of fact, coffee is overtaking natural gas as this year’s top performing commodity with year-to-date gains of 20%!

But before I reveal what has this market popping like a Mexican jumping bean, let’s take a step back to see what got coffee where it is today…

As you may know, this commodity has been stuck in a viscous downtrend for the past three years. 

Why?

With prices surging to $3 a pound in 2011, growers went on a planting binge.  Brazil, Vietnam, and Indonesia (the world’s largest producers) drastically increased production to meet burgeoning global demand.

Unfortunately for them, they overdid it…

Thanks to the incredible efforts of growers, the global market became oversupplied.  In late 2013, Arabica coffee sank to $1 a pound… 66% lower than the 2011 highs. 

Without question, bears have had complete control of this market for years now.

That’s all changing now…

Changes to this year’s Brazilian production estimates have investors rushing into this oversold market. 

You see, when coffee fell to $1 a pound in November, investors were certain the market would be overwhelmed with supply in the 2013/14 growing season.  After all, Brazil was expected to produce another abundant crop of 60 million bags or more.

But then Mother Nature got involved…

In December 2013, a quick rain deluge was estimated to have damaged nearly 40% of Brazil’s coffee crop.   And adding insult to injury, weather patterns are now swinging to the opposite end of the spectrum.  Some of the most prolific coffee growing regions of Brazil are stuck in a severe dry spell.  According to weather experts, it hasn’t been this dry in 15 years. 

And that has analysts cutting the country’s coffee production forecast by as much as 15%. 

Take a look at what that’s doing for coffee prices…

iPath Pure Beta Coffee ETN

As you can see from this chart of the iPath Pure Beta Coffee ETN (CAFE), the price of coffee is going parabolic.  In case you’re unaware, CAFE is a commodity ETF that tracks the price of coffee.  When coffee prices rise, so does CAFE.

In just the past week alone, coffee has jumped by 18%!

Thankfully, I caught wind of this fundamental development in the coffee market in early January.  And the best part is, I told subscribers to my flagship commodity service, the Commodity ETF Alert, to buy CAFE at any price under $15.83.

How much higher will coffee go?

Investors will be closely watching the long-range forecasts for signs of precipitation in Brazil.  If the rains come, coffee may give up some of its recent gains.  But if it doesn’t, there’s no telling how high this commodity could go!

Until Next Time,

Justin Bennett

*** Editor’s Note***  If you’d like to discover what makes the commodity markets tick, I urge you to check out the Commodity ETF Alert today!

Tags: , ,

Category: Coffee

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

Leave a Reply