Agricultural commodities floated to the top of the ETF leader
board while the stock market lacked direction Thursday. Ag
commodities' bear market of the past year may be on its last
legs, investment strategists say, owing to poor weather for
grains and crop disease for coffee.
IPath DJ-UBS Coffee ETN (
) gapped up 2.11% to 31.54 -- a two-month high. Although it broke
above the 50-day line last week, it trades deep below the 200-day
line, which is bearish.
Excess global supplies sent JO down 25.43% in the past year
and 2.5% year to date. Global production from all exporting
countries rose 6.4% in the 2012-13 crop year while consumption in
those countries ticked up 2%.
Earlier this week Brazil -- the world's largest coffee
producer and exporter -- raised the minimum price for arabica
coffee by 17% to increase farmers' income. This is the first time
in four years the government has intervened; it could support
prices further, says Jack Scoville, senior market analyst at the
PRICE Futures Group in Chicago.
A new bull market in coffee is starting to emerge, owing to a
massive crop disease on high-quality arabica coffee trees in
Central America, says Shawn Hackett, president of Hackett
Financial Advisors in Boynton Beach, Fla., who specializes in
The coffee fungus has destroyed a quarter of Central American
crops and is the worst since 1976, prompting some countries to
declare emergencies, the International Coffee Association
reported. Production in Mexico and Central America for the crop
year 2012-13 is estimated to have plunged 15.2% over the prior
year to 17.2 million bags, according to ICA.
The brunt of the roya leaf rust damage will be experienced in
autumn 2013 and winter 2014, Hackett wrote in his May
"Also, given the likelihood of lower robusta production in
Vietnam and Indonesia over the next crop cycle against a huge
ongoing supply-demand deficit that has continued to draw down
robusta certified stocks, expect an increasing willingness on
behalf of roasters to switch to the midquality Brazilian Naturals
as a logical and economical replacement," Hackett wrote.
In addition, speculators in the coffee futures market are
shorting, or betting on falling prices, at record levels. They're
usually wrong, and should prices tick up, they will have to close
their positions by buying the commodity, thereby driving prices
Other technical indicators such as the "money flow indicator"
and "deferred bull futures spreads" have triggered buy signals on
the short- and long-term time frames, Hackett adds.
"Such dual buy signals usually occur at the very early stages
of a new bull market move," he wrote.
Teucrium Wheat (
) climbed 2.28% to 19.18.Teucrium Corn (
) popped 1.73% to 40.55.
IPath DJ-UBS Grains ETN (
) rose 1.99% to 50.70. It tracks corn, weighted at 43% of assets,
soybeans, 36%, and wheat, 21%.
Prices are rising ahead of an anticipated shortfall in the
U.S. Department of Agriculture's grain supply report due out
Friday, says Scoville.
He expects grain prices to strengthen because of a drought in
the fall, followed by little snowfall in the winter and freezes
in the spring.
' shorter-term moving price averages have crossed below
longer-term averages, indicating strong downtrends.
For now, they appear to be staging a countertrend rally.