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It's Time For A Cup Of JO

June 20, 2016 4:11 pm
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Gold and oil are the world's most heavily traded commodities. Bullion and black gold, as oil is also known, also command the bulk of the headlines in the commodities space.

Despite being one of the world's most consumed commodities coffee, is often overlooked relative to gold and oil. That is certainly true with the iPath Bloomberg Coffee Subindex Total Return ETN (NYSE: JO), which is widely overlooked compared to rival gold and oil exchange traded products.

JO is up 10.4 percent year-to-date, helped by the rebounding Brazilian real and the weaker U.S. dollar. Brazil is the world's largest coffee producer. Short-covering is helping as well as short sellers were caught off-guard by news of uncooperative weather in Brazil, which forced recent harvests to come in lower-than expected.

At the moment, it looks like JO and the rival iPath Pure Beta Coffee ETN (NYSE: CAFE) are poised for more upside.

“Fundamentally, the profile for Robusta coffee has not looked this strong in years,” said Rareview Macro founder Neil Azous in a recent note. “Technically, the profile for Arabica coffee has not looked this strong in years.”

Arabica is the variety of coffee produced in Brazil and other Latin America's other major coffee-producing countries whereas robusta beans come from places like Vietnam.

JO's rise is being felt on the retail side of the coffee business. For example, shares of Starbucks Corporation (NASDAQ: SBUX), the world's largest operator of coffeehouses, are down nearly eight percent this year.

The weaker dollar bolsters the case for coffee, as it does with other commodities.

“Since coffee beans are priced in U.S. dollars, Brazilian farmers are selling more abroad to capitalize off the strong U.S. dollar and weak real currency. Brazil is the largest exporter of coffee beans. According to the International Coffee Organization, world exports were at a record 111.7 million bags last year, with Brazilian shipments rising 15% to 36.3 million,” according to ETF Trends.

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