JO: EYE ON COFFEE

Traders love coffee. Lloyd’s coffee house was a gathering place for speculators in shipping insurance and commodities in 18th century London that turned into Lloyd’s of London (the saloon across the street, Jonathan’s, became the London Stock Exchange –traders also love alcohol).

A data point on coffee this morning had traders taking note: the National Federation of Coffee Growers of Columbia is predicting a cyclical decline in Brazilian Coffee production will cause a global deficit as supply falls below demand that has grown dramatically in recent years.

To put in context, the grade of coffee produced in South America is the premium Arabica grade. Starbucks and other retailers have re-introduced premium South American blends to new audiences from the less urban parts of the US to developing Asian and Eastern European markets in recent years and Columbian Growers are betting that despite slowing growth one of the last sacrifices that people in those markets will make is their premium coffee in the morning.

Coffee Futures felt the same pressure as other soft commodities in recent months as the great deleveraging process saw a tremendous amount of capital flow away from static log index investments which were based on rolling front month positions. Unlike Oil or Gold, Coffee does not enjoy the same following among institutional investors as a standalone investment and so the absence of index investors will significantly impact open interest and volume. JO is an Ipath ETN based on the Dow Jones AIG Coffee sub index, which consists solely of front month NYMEX Coffee Futures on premium South American Arabica.

Andrew Barber
Director

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