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November 4, 2021

Why you should pay attention to Coffee Futures

Sean Streb

By Sean Streb

The Update

Last week I posted an article about how to take advantage of future inflation and the supply shock occurring in the United States and abroad. Towards the end of the article, I briefly referenced a futures ETF called $JO, and how it matches the characteristics of an asset that will benefit from supply shocks and the increased money supply. I think we will see some movement in this stock in the coming days and weeks

The News

Earlier this morning, Reuters posted a great article about how coffee farmers are defaulting on contracts with traders. Previous to this, Yahoo Finance did a piece on how major coffee companies were hoarding beans in anticipation of a shortage. Middlemen and coffee suppliers are having difficulty buying coffee in Brazil and some of these traders are actually suing the suppliers for defaulting on their crops. Reuters notes that this increased scarcity could drive futures contracts higher than they are despite the fact they are already near at 7 year highs. This benefits $JO as it is an ETF that buys and sells monthly coffee futures contracts, and an increase in prices would push this ETF up.

Some Analysis

$JO has a solid upward trend, approaching a previous double top support. The stock also gapped up three days ago on November 1st. If we couple this with some of the points I brought up in my previous post: During the pandemic, coffee was inelastic good, meaning that people continued to demand a similar amount even if the price increases. This is a surprise to no one as America is addicted to caffeine. There is a supply issue: shipping delays, crop issues and defaults have decreased the supply. Add all this to the increase in coffee futures, and we get a better picture of what might happen to the value of this commodity in the near future.

For questions and comments, you can reach me at smstreb97@protonmail.com or through the A1Trading discord at @smstreb97

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