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A worker sifts coffee beans at a processing factory of the coffee trader Atlantic Commodities in Bao Loc, near Ho Chi Minh city. (KHAM/REUTERS)
A worker sifts coffee beans at a processing factory of the coffee trader Atlantic Commodities in Bao Loc, near Ho Chi Minh city. (KHAM/REUTERS)

ETFs

2013 is the year to own coffee Add to ...

Coffee prices have fallen more than 50 per cent since 2010, and you can observe this trend by looking at iPath Dow Jones-UBS Coffee Subindex Total Return ETN.

This exchange-traded note seeks to replicate the returns available through an unleveraged investment in coffee futures contracts as well as the rate of interest that could be earned on cash collateral invested in specified Treasury bills.

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In this graphic you can see the weekly chart shows my price targets for 2013, while the second, hourly chart shows strong volume, meaning big money is slowly building a long position in coffee. The small white chart is the seasonal chart of coffee futures, which shows that prices historically rise from January through March, followed by a correction and then another rally into May.

Coffee prices are still in a down trend, but it looks as though the end is near. If you play coffee right, you could see up to a 100 per cent return on your capital in 2013.

JO Coffee ETF vs. Starbucks Share Price

Lower coffee bean prices have helped lift share prices of coffee companies such as Starbucks, Coffee Holding, Green Mountain Coffee Roasters and Peet’s Coffee & Tea. But cheap coffee may not be around that much longer, and weaker earnings for coffee brewers may be closer than many think.

In short, I have been watching coffee prices for a bottoming pattern for months, and they now appear to be getting very close to a bottom. This could be a great trade and investment for the new year.

As for companies such as Starbucks, this development likely will not have much of an effect on the bottom line until the second half of the year, although it is something to monitor during earning seasons.

This article is commentary by an independent contributor, separate from TheStreet’s regular news coverage. If you want more trading and investing ideas each week along with trade alerts for ideas like this then join Chris Vermeulen’s newsletter today: www.TheGoldAndOilGuy.com.

Follow us on Twitter: @GlobeInvestor

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