8 Commodity Predictions For The Rest Of 2014

By
May 15, 2014
Share:

[This article originally appeared on HardAssetsInvestor.com and is republished here with permisison.]

There's been no shortage of volatility in commodity markets this year. From coffee's spectacular surge to copper's brutal plunge, there's been ample opportunity to generate hefty returns or losses. Here we take a look at year-to-date performance in a number of the most important commodities and analyze how investors can position themselves to profit in the coming months.

Coffee 63.28%
Nickel 51.50%
Corn 17.30%
Wheat 15.50%
Soybeans 13.94%
Palladium 15.50%
Platinum 8.45%
Gold 8.21%
WTI 4.15%
Natural Gas 3.07%
Silver 1.54%
Brent -0.42%
Copper -6.76%

In terms of sector performance, agriculture has been far and away the best performer so far in 2014. Led by coffee—which at one point was up a whopping 95 percent year-to-date—the sector has delivered fantastic returns for investors.

At the heart of the increase in coffee prices has been the severe drought in Brazil. What has been called the worst drought in decades is expected to sharply reduce coffee supplies in the world's largest grower and exporter. Analysts estimate that global coffee supplies may fall short of demand by more than 10 million bags this year—a significant amount in a world that consumes roughly 130 million bags annually.

But are these bullish fundamentals priced into coffee?

Bull case: If Brazil experiences heavy rains this summer during the harvest, the country's coffee yields could suffer more. That would lead to a bigger gap between supply and demand and send prices spiking above $2/lb, perhaps even $3 (where they traded as recently as 2011).

Bear case: On the flip side, the world's second-largest producer, Colombia, is expected to have a stellar harvest, which could help fill some of the gap left by Brazil. At the same time, global coffee surpluses during the past four years have left inventories at comfortable levels. Those could provide a buffer despite this year's expected supply deficit.

Prediction: While it's possible coffee prices may not rally much more from here, it's hard to see them falling back to levels below $1.20/pound where they were at the beginning of the year—at least in the short term. Upside risks outweigh downside risks; thus, investors should take a look at holding coffee in their portfolios. The iPath Dow Jones-UBS Coffee Total Return ETN (JO | B-69) and the iPath Pure Beta Coffee ETN (CAFE | B-97) provide straightforward exposure to coffee futures.

Coffee (YTD)

coffee

 

ETF.COM CHANNELS

Trying to figure out alternatives ETFs? Use our alternatives ETFs channel, library and ETF screener!

Want to learn more about smart-beta ETFs? Check out our smart-beta guide, essentials library and ETF screener!

ETF DAILY DATA

Large-cap U.S. equities and U.S. bond funds, particularly Treasury ETFs, captured the bulk of fresh ETF net assets Wednesday, Sept. 2.

'SPY' and 'BIL' paced State Street's issuer-leading inflows Wednesday, Sept. 2, as total U.S.-listed ETF assets rose to $2.010 trillion.

ETF.COM ANALYST BLOGS

By Dave Nadig

With many ETFs currently trading well off fair value, what’s an ETF investor to do? Don’t panic.

By Matt Hougan

Out-of-favor funds can bring attractive returns.

By Matt Hougan

New data from Charles Schwab show that the death of mutual funds is happening faster than we thought.

By Dave Nadig

Grab the popcorn. Precidian just doubled-down on its nontransparent active ETF proposal with the SEC this morning.

ETF INDUSTRY PERSPECTIVE

By John Del Vecchio

An index that goes long financially sound companies and shorts the ones with problematic balance sheets.

By Dan Draper

The nature of retirement is changing. How can investors adapt?

By Invesco PowerShares

A more in-depth look at the smart-beta survey's results.