Arabica coffee futures trade on the Intercontinental Exchange (ICE) in the U.S., while Robusta coffee futures trade on ICE in Europe. Coffee is a soft commodity and a sector member that includes sugar, cocoa, cotton, and frozen concentrated orange juice futures.
In my Q1 report on soft commodities on Barchart, I wrote, “Soft commodities led the asset class on the upside in Q1,” posting an 11.12% gain. Nearby Arabica coffee futures on ICE settled at $1.7050 on March 31, 2023. In Q2, the price increased, and the trend remains bullish in June as the markets move toward the end of the first half of this year.
The iPath Series B Coffee Subindex TR ETN (JO) tracks coffee futures prices.
The price remains below the midpoint of the price range
After correcting from the February 2022 eleven-year high, Arabica coffee futures prices reached a bottom in January 2023.
The chart highlights the decline from $2.6045 to $1.4205, leaving the midpoint at just above $2 per pound. At the $1.9065 level, the Arabica coffee futures were just below the average price since early 2022.
Meanwhile, the Arabica futures have made a higher low since January 2023 as the correction gave way to another bullish trend.
Robusta futures remain near the record high
Arabica coffee is a much larger market than the one for the Robusta beans. Brazil is the leading Arabica producer, while Vietnam dominates Robusta output. Over the past year, Vietnamese production has declined as farmers have opted to grow more tropical fruit and fewer Robusta beans. The falling supply caused prices to soar.
The chart dating back to 2008 shows the move to a new $2,822 per ton high in June 2023. At over the $2,700 level on June 9, Robusta coffee futures remain near the record peak. The bullish price action in the Robusta coffee market puts upward pressure on Arabica coffee bean prices.
The trend since January is bullish
On January 11, coffee futures reached a bottom at over $1.40 per pound. Since then, the price has been grinding, no pun intended, higher.
The July Arabica coffee futures chart displays a distinct pattern of higher lows and higher highs. The trend is always your best friend in markets, and it remains bullish. When fundamentals agree with a technical trend, it can add significant momentum.
Exchange stocks fall- Bullish prospects for coffee prices
Carlos Mera, the chief coffee analyst at Rabobank, warned of “A major squeeze in Arabica futures, maybe in July or September,” because of the decline of Arabica stockpiles at the Intercontinental Exchange warehouses over the past months. Certified stocks at the exchange on May 31, 2023, stood at 583,518 bags, the lowest since December 2022, and down from 1.06 million bags at the end of May 2022.
Falling stocks indicate lower output and could fuel another explosive move in the ICE Arabica coffee futures market. Aside from the current trend and stockpile data, the rally in Robusta futures supports higher Arabica prices.
JO is the coffee ETN product
The most direct route for a risk position in Arabica coffee futures is the futures and futures options on the Intercontinental Exchange. Market participants seeking coffee price exposure have an alternative. The iPath Series B Coffee Subindex TR ETN (JO) tracks the price action in the ICE Arabica coffee futures market.
At $54 per share on July 9, JO had $25.823 million in assets under management. JO trades an average of 11,410 shares daily and charges a 0.45% management fee.
Nearby coffee futures rose 34.2% from $1.4205 in January to $1.9065 on June 9.
The chart shows the 32.5% rise in the JO ETN, moving from $40.75 to $54 per share since the January 11 low, as the ETN did an excellent job following the futures market.
The technical trend, low warehouse stocks, and record Robusta prices make Arabica futures attractive below the midpoint since early 2022. The JO ETN is a product for those seeking to buy coffee without venturing into the leveraged and margined futures arena.
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.
