Join        Login             Stock Quote

Commodity Trading Trends: Coffee Futures Continue Their Slide (JO, MON, SGG, BAL, NIB)

 February 15, 2012 11:24 AM

Commodity futures are known to exhibit a fair amount of volatility, but there is perhaps no group of assets more volatile than the softs. Soft commodities, which consist of cocoa (NYSEArca:NIB), coffee, cotton (NYSEArca:BAL), and sugar (NYSEArca:SGG), are known for their large daily movements, as it is not uncommon to watch these contracts jump by 3% in a single trading session. As such, they make for extremely lucrative trading opportunities, despite their high risks. So it comes as no surprise that a number of investors actively trade these four commodities in hopes of turning big gains. It is also important to note that all four of these have very different price drivers, so while an asset like cotton has enjoyed a strong 2012, coffee has done just the opposite [see also Five Commodity MLPs With Sky High Yields].

[Related -Monsanto Company (MON) Dividend Stock Analysis]

[Related -Monsanto Company (MON): Shares Offer Compelling Value]

Since hitting a high in September of last year, coffee prices have dropped almost 30% with only minor upward spikes along the way. As far as 2012 is concerned, coffee has certainly had a hard time, but the last week has been especially bad. Over the trailing five days, coffee futures have lost more than 8%, creating a unique opportunity for traders looking for possible mispriced assets. With coffee futures in the gutter, there are two ways to look at this commodity from a trading perspective. The first is that coffee is on a slippery slope and establishing a short position can help you take advantage of that pattern. The second is that these prices may be well undervalued and an opportunity to buy in low and sell high [see also 50 Ways To Invest In Agriculture].

Ways To Play

For investors looking to make a play on this developing commodity trend, there are a number of options available. The most direct method is to establish exposure to coffee futurescontracts, with the current May contract supporting the most volume, via the NYMEX. But not everyone is   savvy to futures markets as they can be quite  complex and difficult to   understand. In that case, the Dow Jones-UBS Coffee ETN (NYSEArca:JO), offers exposure to front month futures contracts for coffee and will give investors a more indirect way to play these futures. And finally, investors can take a more indirect approach with stocks like Monsanto (NYSE:MON) who's profits do not depend solely on coffee, but certainly rely a great deal on this soft commodity [see also The Ultimate Guide To Coffee Investing].

Written By Jared Cummans From CommodityHQ  Disclosure: No positions at time of writing.



Comments Closed

rss feed

Latest Stories

article imageTackling China's Debt Problem: Can Debt-Equity Conversions Help?

China’s high and rising corporate debt problem and how best to address it has received much attention read on...

article imageWill Job Growth Kill The Bear-Market Signal For Stocks?

It’s all about jobs now. Actually, it’s always been about jobs. But the stakes are even higher—perhaps more read on...

article imageAutomating Ourselves To Unemployment

In this current era of central planning, malincentives abound. We raced to frack as fast we could for the read on...

article imageFed: Waiting For June… Or Godot?

The Federal Reserve left interest rates unchanged yesterday, as widely expected. But the possibility of a read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.