Caution On Red Hot Coffee ETNs

October 07, 2014

All eyes are on the bitter-dark manna, but are ETNs a safe way to play it?

This morning’s Wall Street Journal features just the latest in a long string of articles noting the incredible rise of coffee in the commodity markets. It’s a story that’s been brewing (sorry) for quite a while now.

We first wrote about the pop in coffee back in February, when both of the major ETNs tracking coffee were up 50 percent already.

Things have only gotten more heated since:

JOCAFE

The leading ETN tracking the space, the iPath Dow-Jones-UBS Coffee Total Return ETN (JO | B-67), is up almost 95 percent on the year. That’s an astonishing run for any asset, regardless of circumstance. But let’s tease out some of the dangers here for anyone reading the Journal article and jumping on the bandwagon.

First, it’s worth pointing out that coffee is nearly the only commodity in the world in the middle of a bull market. Consider what’s going on across the asset class, courtesy of HardAssetsInvestor.com and its excellent Week In Review section:

Commodity Wrap

Commodity Weekly Return YTD Return
Wheat 2.74% -19.50%
Soybeans 1.65% -29.55%
Corn 0.62% -22.99%
Natural Gas -0.25% -6.15%
Copper -0.66% -11.47%
Gold -2.06% -1.03%
Palladium -2.67% 6.11%
WTI -3.25% -8.05%
Silver -4.76% -13.71%
Brent -4.79% -16.65%
Platinum -5.64% -10.41%

Among the majors, palladium is the only other commodity that’s actually up for the year, and nothing looks anything like the craziness we’re seeing in coffee.

 

Find your next ETF

Reset All