The Single Best Commodity Play of 2013?

By Chris Vermeulen  DEC 31, 2012 9:55 AM

Big money is going long on coffee with expectations that prices will rebound next year.

 


Coffee prices have fallen more than 50% since 2010, which can be seen through iPath DJ-UBS Coffee Subindex Total Return SM Index ETN (NYSEARCA:JO), which is a coffee exchange-traded fund. This investment seeks to replicate the returns that are potentially available through an unleveraged investment in coffee futures contracts as well as the rate of interest that could be earned on cash collateral invested in specified Treasury bills.

Weekly, Hourly, and Seasonal Chart of JO, the Coffee Exchange-Traded Fund

The top weekly chart shows my price targets for 2013 while the lower hourly chart shows strong on balance volume, which means that big money is slowly building a long position in coffee. The small white chart is the seasonal chart of coffee futures, showing prices historically rise from January to March; then there is a correction followed by another rally into May.

Coffee prices are still in a downtrend, but it looks as though the end is near. If played properly, it could provide up to 100% return on your capital in 2013.



Coffee Futures Monthly Long-Term Chart

This chart gives you a bird's eye view on where coffee prices are trading in the big picture scheme of things.



JO Coffee ETF Vs. Starbucks (NASDAQ:SBUX) Share Price

Lower coffee bean prices has helped lift share prices of coffee companies like Starbucks, Coffee Holdings Co. (NASDAQ:JVA), Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), and Peet's Coffee & Tea (NASDAQ:PEET). But cheap coffee may not be around that much longer and the lower earnings for coffee brewers may be closer than most may think.



2013 Caffeine Conclusion

In short, I have been watching coffee prices for a bottoming pattern for months and I now feel it is getting really close to a bottom and it could be a great trade and investment in the new year. As for companies like Starbucks, it will likely not have much of an affect on the bottom line until the second half of the year though it is something to keep an eye on during earning seasons.

Editor's Note: Chris Vermeulen offers more content at his sites, TheGoldAndOilGuy.com and Traders Video Playbook.
No positions in stocks mentioned.

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