I was crazy for my car.
Thunder roared from the sky, rain and wind blew around me, and I wanted to be inside the fluttering red Toyota so that I could continue to flutter in my rain-soaked shoes.
But suddenly he saw the bright green mermaid logo in the fog on the other side of the park. And I found myself lying on top of my car toward the Starbucks lighthouse.
It’s good when a coffee siren calls out to a caffeine addict like me … not even a monsoon can stop me.
As an investor, if you haven’t already, you can force yourself to think about the demand story of coffee.
This is a smart move now.
Yes, coffee has an exciting history: it is one of the most volatile commodities traded in the US and global futures markets. Every year, the mood and price are shaped by the weather conditions in the main growing regions. When the forecast is completely correct and there are no fungal plagues that destroy crops, prices fall.
But then a critical area of coffee growth, such as Brazil, the world’s largest producer in 1986, which accounted for more than a third of all coffee supplies, was hit by a devastating drought. And the price of coffee rockets. (By the way, there are additional volatility forces, such as constant currency fluctuations.)
In the end, such an unexpected, shocking move frightens investors.
But the truth is that global demand for coffee is expected to double by 2050.
Meanwhile, we are behind a three-year supply shortfall as critical and volatile droughts continue in critically growing regions such as Brazil.
In addition, the genetic diversity of the Arabica coffee bean, the highest quality and most widely consumed bean, is extremely low. This is due to the fact that the plant is not able to adapt quickly to changes in the environment and emphasizes the sensitivity of the product to survival.
Not surprisingly, stocks are struggling. The International Coffee Organization expects coffee production to reach a global record of 153.9 million bags in the 2016-2017 season. However, the demand is projected at 155.1 million packages. That’s a difference of 1.2 million bags.
Yes, much of this knowledge has been valued with coffee. But it is clear that the product is facing an “existential crisis,” according to Ric Rhinehart, executive director of the Special Coffee Association.
And this is a long-running demand story.
I know you’re probably thinking, “Everything’s fine, Jess. But what does this mean for investors in the short term?”
The price of coffee is heating up. Consensus estimates are a 5% increase for Arabica coffee prices for next year. But it is conservative.
As one expert put it, “Short-term volatility should give us a two-digit move. It’s not a confusing, big gain, but the sentiment is overwhelming, and traders’ forecasts are lined up for a solid gain.”
There are two ways to invest in this: iPath Bloomberg Coffee ETN (NYSE: JO) and iPath Pure Beta Coffee ETN (NYSE: CAFE), was launched in 2008 and 2011, respectively. If you take one of these, cash it out after earning 10% or 20%.
With all that said, I think it’s time to hunt down my next cup of coffee. (I hope it’s not raining.)