The iPath Bloomberg Coffee Subindex Total Return Exp 24 June 2038 (NYSE:JO) hit the fresh all-time low that I did not think would happen.
A report on surplus sent the iPath Bloomberg Coffee SubTR ETN (JO) to a fresh all-time low on high selling volume.
The proximate news was a report of surplus from the CoffeeNetwork as reported by Reuters (I could not find mention of this forecast on the group’s twitter or Facebook (NASDAQ:FB) feeds). According to Reuters:
“The world coffee market is likely to see a larger global surplus in the 2018/19 season with production boosted by an on-year in Brazil’s biennial crop cycle, CoffeeNetwork said on Monday. The analysts said in a report that based on a “low-end” forecast of 55 million 60-kg bags for Brazil’s crop and stable production in Colombia and Vietnam there could be a global surplus of 3.7 million bags in 2018/19, up from an anticipated 0.9 million in the prior season.”
This news was apparently enough to roil the futures market. Ironically, the selling comes right on the heels of reassuring news last week that growers were resisting selling into the current depressed market. According to Bloomberg:
“…reticence to sell too cheaply by well-capitalized farmers in Brazil and Vietnam could upset speculators’ bets that a glut will weaken the market further. Prospects of a bigger Vietnamese crop this year, a bumper Brazilian harvest in 2018 and a resulting surplus have helped drive down prices.”
Production surpluses are very sensitive to any weather hiccup. Moreover, the inventory situation may not be as plentiful as it seems:
“‘What the world ignores is that the carry in this year is small, so total availability is the same’ in Vietnam, Alex Gruber, a director at RCMA Commodities in the nation, said in an interview in Ho Chi Minh City Monday. ‘In Brazil, the carry in is very low so the pipeline needs to be built out again.’
Coffee inventories in Brazil will fall 61 percent to 1.04 million bags by June 2018, according to Santos, Brazil-based exporter Comexim Ltda. In Vietnam, stockpiles fell 69 percent to 1.18 million bags at the end of last season, the lowest since 2011-12, the U.S. Department of Agriculture estimates.”
So it looks like a battle of wills between the farmers and the speculators. Unfortunately, the speculators likely have the upper hand until a fresh catalyst appears to lift prices. Speculators know that at SOME point in the near future farmers will sell…and if the selling occurs en masse, prices could drop even further. The upshot of such selling may be a final wash-out and a more lasting bottom in price.
Be careful out there!
Full disclosure: long JO