Cup of ‘JO’ – Coffee ETN

Is coffee more than a morning pick-me-up?

Many people consume coffee in both developed and emerging markets across the world and do not immediately consider it to be an investable asset. However, given the supply-demand fundamentals of the coffee market, there is certainly an argument for its investment potential.

As mentioned, coffee is consumed globally and is a staple in many countries. Given the global population growth, there is likely to be sustained demand support from the population demographic trend alone. However, there are two key considerations for investors looking to access the coffee market: 

Due to the concentration of its production – supply is highly concentrated in countries such as Brazil, Vietnam and Colombia - and the growing impact of extreme weather conditions, coffee tends to see highly volatile pricing. This year alone, the coffee “C” futures contract (which is the world benchmark for Arabica coffee) has seen a 52-week high of $260.45/lb and a low of $150.45/lb; which equates to ~73% price swing. 

Gaining exposure to the coffee industry is notoriously difficult given that production is typically managed by smaller, privately-owned farming companies. As a result, purchasing public stocks in the coffee industry is a significant challenge. Of course, investors could use futures, but there is the difficulty of setting up a margin account and having to deal with rolling futures exposure as futures contracts have expiration dates. 

Coffee index explained

In light of the notable challenges with accessing the coffee market, a suitable alternative for US investors could be to use ETFs or ETNs such as the iPath Series B Bloomberg Coffee Subindex Total Return ETN.

iPath Series B Bloomberg Coffee Subindex Total Return ETN is a security designed to provide exposure to the Bloomberg Coffee Subindex Total Return index. The index is composed of one or more futures contracts on the commodity of coffee. Therefore, purchasing the ETN would give similar exposure to holding a futures contract of coffee and does not offer direct exposure to the physical commodity.

Source: Barclays

iPath Series B Bloomberg Coffee Subindex Total Return ETN (NYSEARCA:JO) Summary

• Last price: $46.92
• Market cap: $64 million
• ETN’s outstanding: 1,363,109 (as of December 19, 2022)
• Asset class: Commodities
• Inception date: January 17, 2018
• Investor fee rate: 0.45% per annum

Data as of December 19, 2022.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.