A Morning Cup Of Coffee Becomes ETN Inspiration

Can coffee deliver a jolt to your exchange traded note (ETN) portfolio? Sure, you can cut back on food as prices get higher. But give up the morning java? Never!

As anyone who’s been to a cafe recently can attest, coffee isn’t cheap and it’s poised to get even pricier. In Brazil, the cost of fertilizer and farm labor is putting the squeeze on profits, reports Peter Murphy for Reuters. The price for fertilizer has nearly doubled in less than a year, but the biggest blow has been the appreciation of the Brazilian real, which cuts into growers’ incomes.

Arabica futures are up 25% from a year ago, and Brazil is the top coffee-producing country in the world. Colombia is second.

Last month, Barclays rolled out a few ETNs intended to track the direction of several markets, including coffee. This has been part of the new breed of financial instruments designed for individual investors to bet on specific commodities, reports J. Alex Tarquinio for The New York Times.

This trend seems inevitable, given the sharp upward direction that food prices have gone. However, financial advisors warn that speculating on individual commodities can be a dangerous game, especially after the money has been made. As food has taken on the role of major commodities such as oil and grain, insiders reckon that commodity prices are way more volatile than shares of commodity producers. Many criticize the single-commodity ETN as more of a distraction than diversification tool.

Commodities have been in a bull for awhile now. Whether it will remain so and for how long is anyone’s guess. Just be aware of the risks of commodities and look for those funds trading above their 200-day moving averages.

Coffee exposure can be had in both:

• UBS E-TRACS CMCI Food (FUD), launched April 4
• iPath Dow Jones-AIG Coffee Total Return Sub-Index (JO), launched July 8

Posted in Categories: Commodities, Contributor, External Research, Stocks, USA.

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