Commodity ETF Alert March 2014 Issue

 

Commodity Outlook:  Cocoa

Some very interesting news is crossing the wires this week…

Meteorologists the world over are sounding the alarm.  The odds are growing quite high that an El Niño develops over the next six months.  As you may know, the term El Niño refers to the abnormal warming of Pacific Ocean surface temperatures.

What’s the big deal about that?

Let me explain…

Abrupt changes in the Pacific’s surface temperatures have a tendency to alter weather patterns around the globe.  The most notable change is that some regions see increased rainfall, while others see a decrease.  The only thing common among all regions is temperatures seem to increase.

Scientists aren’t exactly sure what causes this mysterious ocean anomaly to occur.

But one thing is for certain…

When these troublesome weather patterns develop, they have a tendency to damage crops in many of the world’s agricultural regions.  In fact, the last major El Niño in 1997-1998 caused billions of dollars worth of agricultural damage in the US alone.

Global damage figures are hard to come by but commodity analysts agree that El Niños are detrimental to many of the world’s agricultural crops.

And one commodity that’s poised to suffer the most is cocoa…

You see, West Africa faces an increased risk of drought due to El Niño.  And since the vast majority of the world’s cocoa production is centered in the West African nations of Ghana and Ivory Coast, it could be a big problem for the region’s growers.

And listen to this…

The potential troublesome effects of El Nino come on top of the fact the global cocoa market is already in deficit.

In case you’re unaware, cocoa is trading in a strong technical uptrend thanks to overwhelmingly bullish supply/demand fundamentals.  And now that El Niño is entering the picture, the case for cocoa becomes even more bullish.

I’ll talk more about cocoa’s supply/demand situation in our monthly update.  For now, just focus on buying the iPath DJ-UBS Cocoa Total Return ETN (NIB) at any price under $39.75 per share.

Technically Speaking:

As you can see, NIB is in a strong technical uptrend.  I expect this trend to continue as the supply/demand situation worsens for cocoa.  If we get any substantial dips in the commodity, feel free to add to your bullish position.

WHAT TO DO NOW:

iPath DJ-UBS Cocoa Total Return ETN (NIB) is trading at $39.41
Buy NIB up to $39.75 per share
Our profit target is $45.00 or more

 

Category: Commodity Trading