My Q1 2023 report on Barchart highlighted the 1.91% gain over the first three months of 2023, with the nearby ICE coffee futures settling at $1.7050 per pound at the end of March. The report noted that the price moved back toward the $2 level over the first two weeks of April.
Nearby coffee futures have been in a bullish trend since the January lows, and higher highs could be on the horizon. The iPath Series B Coffee Subindex TR ETN product (JO) follows ICE Arabica coffee prices higher and lower.
Arabica coffee futures are back in a bullish trend
The continuous ICE Arabica coffee futures contract reached a $2.6045 per pound high in February 2022 before correcting.
As the chart highlights, coffee futures fell after reaching the highest price since September 2011, reaching a $1.4205 low in January 2023. Coffee futures found a bottom at the January low and have made higher lows and higher highs over the past months, probing above the $2 per pound level in April. The active month July futures contract was trading just below $1.90 on Friday, April 28.
Robusta coffee rises to the highest price in a dozen years
While the ICE futures contract reflects Arabica futures prices, Robusta beans that trade on the European Intercontinental Exchange exploded higher in April 2023.
The chart illustrates the rally that took Robusta coffee futures to $2,608 per ton in April 2023, only $3 shy of the May 2011 $2,611 all-time high. The Robusta rally put upside pressure on Arabica futures.
Vietnamese production is falling
Robusta coffee is made from the coffee canephora plant’s beans that originated in Africa. Robusta is widely used in expresso blends because it produces a better crema, the creamy layer on top of an espresso shot. Robusta is hardier, more resistant to crop disease, and has better crop yields.
Arabica coffee has a smoother, sweeter taste, while Robusta has a stronger, harsher, and more bitter taste. The Robusta bean has roughly twice the caffeine content of the Arabica bean.
Source: Indexmundi.com
The chart shows that Vietnam is the leading Robusta coffee bean-producing country. Meanwhile, the price rose to the highest level since 2011 as Vietnamese producers have downsized their coffee cultivation area to grow passion fruits and durian instead. Less Vietnamese Robusta production has pushed prices higher.
Vietnam and Brazil are the producers to watch
While Vietnam leads in Robusta output, Brazil is the overall leader in annual coffee bean production.
Source: Statista
The chart shows Brazil’s coffee bean output was more than twice Vietnam’s in 2020. The weather, crop diseases, and other factors in Brazil and Vietnam are the most significant factors determining the path of least resistance of coffee futures prices each year.
JO tracks Arabica prices- The trend is higher
The most direct routes for risk positions in the coffee market are the ICE U.S. Arabica coffee futures and futures options and the ICE European Robusta coffee futures and futures options markets.
The iPath Series B Coffee Subindex TR ETN product (JO) provides an alternative for market participants seeking exposure in the volatile coffee market without venturing into the highly leveraged and margined futures arena. At $54.39 per share on April 28, JO had $122.726 million in assets under management. JO trades an average of 18,030 shares daily and charges a 0.45% management fee. JO follows the U.S. ICE Arabica coffee futures prices. The continuous Arabica futures contract rose from $1.4205 in January 2023 to a $2.0745 high in April 2023, a 46% increase.
Over the same period, JO rose from $40.75 to $59.85 per share, or 46.9%, as the ETN did an excellent job tracking the ICE futures.
The trend is always your best friend in markets, and it remains higher in the coffee futures arena in late April 2023. The shortage of Vietnamese Robusta beans could continue to push Arabica coffee bean prices and the JO ETN higher over the coming weeks and months.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
