Commodity ETF Alert May 2014 Issue

 

Commodity Outlook:  Coffee

Believe it or not, it’s already time to jump back in the coffee market.  As faithful readers know, we locked in gains of 45% on the iPath Pure Beta Coffee ETN (CAFE) earlier this year.

But after a few months of price consolidation, and more information on the drought situation in Brazil, there’s another bullish profit opportunity in coffee.

Let me explain…

Over the past few weeks, commodity analysts gained a better understanding of Brazil’s coffee crop.

New data suggests the current drought will have long lasting effects.

You see, dry weather has stunted growth in new vegetation that will provide next year’s Brazilian crop.  So not only is this year’s crop expected to come in weak, but so will the following years.

Speaking of this year’s coffee crop…

Brazil’s official crop bureau, Conab, just downgraded their coffee production estimate yet again.  After expecting a 50 million bag crop in early 2014, the government agriculture agency now sees production of a relatively meager 44 million bags.

The current drought, along with heavy pruning by Brazilian coffee plantations late last year, has production estimates sinking quickly.

And remember…

The weather effects of the looming El Niño are yet to be felt.  As I’ve mentioned in previous updates and trade alerts, global meteorology officials are upping the odds of this destructive weather anomaly hitting to 75% from 50%.

In past El Niño cycles, South America suffered with extensive drought conditions in the Northern half of the continent.  In case you’re unaware, Brazil’s top coffee growing state, Minas Gerais, is smack dab in the middle of this region.

I’ll give you more details on the bullish situation in coffee in a few weeks.  For now, just focus on entering the iPath Pure Beta Coffee ETN (CAFE) at any price under $24.25 a share.

Let’s look at a chart…

Technically Speaking:

As you can see, CAFE is nearing the low set in early April.  The current price pullback provides us a great entry into the market.  If coffee drops further to the $1.60 range in coming weeks, CAFE will likely drop to the $22.00 area.

In such a situation, you may want to add to your bullish position!

WHAT TO DO NOW:

iPath Pure Beta Coffee ETN (CAFE) is trading at $23.90
Buy CAFE up to $24.25 per share
Our profit target is $30.00 or more

 

Category: Commodity Trading