Coffee ETN declines on prospects of an end to Brazil’s drought

By: Anton Aleksandrov
Anton Aleksandrov
Anton is a freshly graduated economist from the States with passion for the world of finance. He is one… read more.
on Mar 21, 2014
Updated: Oct 21, 2019 Thursday, March 21: Coffee futures on ICE yesterday posted their biggest two-day decline since 2010 on the back of forecasts for rain in Brazil. An unexpected draught in the Latin American country threatened production and sent coffee prices to their highest level in two years on March 12.

Even as the threat of drought is subsiding, prices remain 30 percent higher than a year earlier. The Commodity Weather Group expects that the return of rain to the country’s growing areas will halt crop losses.
“The market is trading on the forecast for rain,” Boyd Cruel, a senior analyst for Vision Financial Markets, said as quoted by Bloomberg. “The rally was overdone: way too fast, too soon. We’ve had surpluses, and there’s still abundant supplies to meet demand.”

Coffee prices fell almost seven percent yesterday after the MDA Weather Services forecast rainfall of 200 percent to 300 percent above average over Brazil’s growing regions during the next 10 days. “If sufficient rains come in Brazil, this might take some of the weather premium out of the market, although some irreversible damage has certainly been done,” Birgit Wippler, soft commodities analyst at F.O. Licht, said as quoted by Business Recorder. “Prices will remain elevated at least until we get a clearer picture of the extent of damage from the drought, when farmers start harvesting.”

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Analysts from Societe Generale are expecting a surplus in the supply of coffee, with production topping demand by 1.5 million bags. Brazil’s coffee export association Cecafe has said that Brazil could export 33 million bags in 2014, compared to 31.1 million last season.

**iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (NYSEArca: JO)**
JO is an exchange-traded note tracking the Dow Jones-UBS Coffee Subindex Total Return. The index reflects the returns that are potentially available through an unleveraged investment in the futures contracts on coffee. It currently consists of one futures contract on the commodity which is included in the Dow Jones-UBS Commodity Index Total Return.

The ETN has a market capitalisation of $113.2 million (₤68.7 million) and an annual fee of 0.75 percent. In the year to February 28 the note had returned 60.32 percent to investors. Due to the recent plunge in coffee prices, the market price of JO has fallen by 12 percent over the last five trading days. Yesterday it closed $2.38, or 6.53 percent, lower at $34.62.
**As of 11.37 UTC buy iPath DJ-UBS Coffee Subindex Total Return SM Index ETN at $34.63.**
**As of 11.37 UTC sell iPath DJ-UBS Coffee Subindex Total Return SM Index ETN at $34.61.**

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