Heavy rainfall have many concerned about coffee supplies, pushing the agriculturally-based commodity to its highest levels in more than 13 years giving positive price support to the iPath DJ-UBS Coffee TR Sub-Idx (JO), the PowerShares DB Agriculture Fund (DBA) and the iPath DJ-UBS Agriculture TR Sub-Idx ETN (JJA).

Coffee futures for December delivery recently broke $2 per pound as a string of storms in the Caribbean dumped huge amounts of rain over South and Central America resulting in lower crop yields and destruction of the quality of existing coffee beans.  This shortage in coffee beans, more specifically Arabica beans, is causing many to shore up on stockpiles to meet demand.

In fact, according to Adam Cancryn of the Wall Street Journal, stockpiles certified as deliverable against futures contracts have declined by 44% compared with the same period last year.  Additionally, firms who purchase raw, green coffee have started to mix new beans with older beans to keep up with coffee demand, eating away at inventories.

In a nutshell, there is likely to be a large supply and demand imbalance of java, enabling the previously mentioned ETFs to reap the benefits.

  • iPath DJ-UBS Coffee TR Sub-Idx (JO), which is a pure play on coffee futures.
  • PowerShares DB Agriculture Fund (DBA), which boasts December coffee futures as its top holding at 15.29% of total assets
  • iPath DJ-UBS Agriculture TR Sub-Idx ETN (JJA), which allocates 9.58% of its weightings to coffee futures.

Disclosure: No Positions

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