In 2013, commodity investments were quite poor across the board.
Speculation of a stronger dollar-and a heavy preference for equity
investments thanks to surging markets-led many to abandon natural
resource picks for the time being.
However, to start this year, commodity investments have been doing
a bit better. Equities have been slumping while a number of
commodity specific factors have also hit the market, leading to
bullish conditions. While this has been the case in a number of
segments to begin 2014, it has been especially true in the coffee
market (also see
Corn ETF Surges on Surprise Harvest Estimate
Coffee in Focus
Coffee had a horrendous 2013 as a huge wave of supplies hit the
market, demand levels were uncertain in many corners of the globe,
and general interest in commodities plunged. Though due to recent
weather in the world's top growing country-Brazil-the tide might be
turning for this commodity.
That is because there is a severe drought in the country's
southeastern region, which is also the main growing region for the
crop. Additionally, Brazil has seen the hottest January ever, and
the least rain for the month in at least two decades, according to
Marco Antonio dos Santos, an agronomist at Somar,
for a Bloomberg article
Add this drought into the fact that Brazil's dry season is right
around the corner in April, and there is plenty of concern that
water levels available for the coffee will be rather low this year.
And if this happens, it could definitely impact the crop and send
fresh supplies of coffee crashing (see
all the agricultural ETFs here
Due to this speculation, coffee futures have been on a tear, with
huge gains seen in the crop. Plus, thanks to the long term trend
lower on coffee, there was also a bit of a short squeeze in the
commodity, pushing coffee to a gain of more than 7% on the day, and
20% since the start of 2014.
Thanks to this boost, coffee is now riding high, and some investors
might be looking at a way to target the crop, either as a long
momentum play, or to make a bet on a slump in the product in the
next few weeks. While futures are definitely an option, some
investors might want to take an exchange-traded product route
ETFs to Play Coffee
Currently, there are two ways to play the coffee market in exchange
traded form. Either of these products could be interesting
selections for investors seeking to make a bet on coffee, assuming
it can keep up its new found momentum:
iPath Dow Jones UBS Coffee ETN (
The most popular option in the coffee market, this ETN holds front
month coffee futures for exposure to the commodity. The note
charges investors 75 basis points a year in fees, and it looks to
follow the Dow Jones-UBS Coffee Index.
The product usually sees volume of about 160,000 shares a day, but
saw close to 900,000 shares move hands in Monday's session. This
came on a move higher of nearly 8.5%, though the ETN is still down
over 18.9% in the past one year time frame (see
3 Commodity ETFs to Watch in 2014
iPath Pure Beta Coffee ETN (
For a slightly more 'active' approach, investors have this 'Pure
Beta' ETN. The product charges investors 75 basis points a year in
fees, and looks to select the futures contract that best mitigates
the impact of roll yield on the underlying investment.
This approach hasn't really caught on with investors, as it has
just under $10 million in AUM, while its volume is usually around
the 25,000 share a day mark. However, in Monday trading, it saw
volume of about 117,000 shares, while its price moved higher by
Still, the ETN is down over 18% in the past year, suggesting it has
a long way to go to get back to the positives, or even to hit the
and its -10% return over the past year.
Coffee futures have been a terrible investment thanks to an
unfavorable futures curve, and concerns over a supply demand
imbalance. However, due to some very unseasonable weather in
Brazil, some of the excess supply in the coffee world is drying up,
suggesting that the tide might be turning in this market (also see
list of Leveraged Commodity ETFs
Just remember that coffee investments have seen a very volatile
history, and that big gains have gone up in smoke in a very short
time period. So while JO and CAFE might appear intriguing,
investors will definitely have to be nimble, as any changes in the
weather could send these commodity products tumbling back on their
long-term trend-line once more.
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IPATH-PB COFFEE (CAFE): ETF Research Reports
PWRSH-DB AGRIC (DBA): ETF Research Reports
IPATH-DJ-A COFE (JO): ETF Research Reports
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