HH Betting On Coffee’s Uncertain Future

According to Hanna Neuschwander, the Communications Director for the World Coffee Research, demand for coffee will double, while over that same timeframe climate change will cut in half the land area available for growing coffee. A little over a month ago, I launched a trade in iPath Bloomberg Coffee SubTR ETN (JO) as a play on the June lows holding in the face of strong, secular demand for coffee. Suddenly, I like this trade a LOT more even as JO continues to struggle around all-time lows.

This weekly chart of the iPath Bloomberg Coffee SubTR ETN (JO) shows a price in secular, multi-year decline. I have been waiting on a third breakout point...

Source: FreeStockCharts.com

This weekly chart of the iPath Bloomberg Coffee SubTR ETN (JO) shows a price in secular, multi-year decline. I have been waiting on a third breakout point.

A recent article in the Washington Post called “The Race to Save Coffee” goes into lurid detail about the struggles to save the coffee industry from the ravages of climate change. The prospects look dire, but there is potential in increasing the number of varieties of coffee plants. Coffee has 36 varieties, a paltry number compared to a crop like watermelon and its 3000 varieties.

There is hope in “F1 hybrids.” They demonstrate “hybrid vigor” and generate very high yields. Yet, only one of these hybrids, Centroamericano, has made it into scaled planting and is still a very tiny fraction of overall production. I am guessing the market that prices coffee is placing a LOT of high hopes on the success of science or is simply unable to price in the risks of a process playing out over the next several years.

Read the Washington Post article for more details or watch the following video for a summary of the issues and the potential solutions.

 

Disclosure: Long JO

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Comments

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Michael Molman 2 weeks ago Contributor's comment

I feel like climate change is not such a large component in the short term. With that being said I have been studying coffees chart and think it has potential for a breakout.

Ayelet Wolf 1 week ago Member's comment

It likely won't be a problem... until it is.

Dr. Duru 2 weeks ago Author's comment

I agree that the market thinks of climate change as a long term problem. Perhaps no one will react until those first few major crop failures. We will see!