Coffee from the ETN Perspective

By Brad Zigler

Good things, it's often said, take time. It just may be that time.

We've talked up the bullish potential for coffee for some time now (our last take was "Coffee: Grounds For Concern?"). Coffee's been a slow-brewing market, but things are perking now. Coffee's Breakfast Index ("CPI: ‘C' Is For ‘Cocoa'") tablemate, cocoa, pulled off a breakout move this week. Coffee now seems poised to do the same.

Our discourse to date has focused on coffee futures. Many investors, though, can't trade futures. Luckily, there are exchange-traded notes, rather niftily tagged with the ticker symbol "JO," issued by Barclays Bank plc that proxy the coffee subset of the Dow Jones-AIG Commodity Index.

The iPath DJ-AIG Coffee Sub-Index ETN (NYSE Arca: JO) is setting itself up for a run on its autumnal reaction highs. The notes, launched last July, bounced to $38.81 before tracking year-end selling to the $32 level. Coffee and the ETN have now clawed their way back to their November price plateaus.

iPath Coffee ETN (NYSE Arca: JO)

A close above $38.81 could put momentum behind a move to the $45 level this quarter. And that might perk up some flagging portfolios.

Comments

[ROLEX18K:]

IPATH DJ-AIG COFFEE(PCX: JO) have 3 month average volume of $100,000 a day, while KC (coffee futures) have average 100 days trading volume of 675,000,000$ a day.
For a very small investor, who invests 1000-5000$ in JO this may be appropriate, but not for serious investor who want to trade coffee or who wants liquidity.
JO has volume of 2000-3000 shares at the price around 40$, bid/ask spread is sometimes 5-10%. It is cearly not for everybody, but if you believe in coffee and want to buy JO, then you have to buy and forget about it, as even if it will go up 10% you will be only even because of bid/ask difference.
This is very illiquid ETN with only 50,000 shares outstanding (2 million USD) and have expense ratio excluding crazy bid/ask difference, of 0.75%.
Really not for everybody, even if Coffee I believe is a good investment.

Jan 30 08:17 AM

[Brad Zigler:]

The current market for JO displays a spread of only 28 basis points (0.28%), nowhere near the 5%-10% distance you cite.

The liquidity index for JO is $76,705, meaning you'd have to swing a trade of 2,005 shares--at current prices--to move the market 1%.

JO might not be the most liquid of securities, but for someone precluded from using futures (such as owners of tax-deferred accounts such as IRA's, 401(k)'s and 403(b)'s, the ETN may be a practical alternative.

On Jan 30 08:17 AM ROLEX18K wrote:

> IPATH DJ-AIG COFFEE(PCX: seekingalpha.com/symbo...) have
> 3 month average volume of $100,000 a day, while KC (coffee futures)
> have average 100 days trading volume of 675,000,000$ a day.
> For a very small investor, who invests 1000-5000$ in JO this may
> be appropriate, but not for serious investor who want to trade coffee
> or who wants liquidity.
> JO has volume of 2000-3000 shares at the price around 40$, bid/ask
> spread is sometimes 5-10%. It is cearly not for everybody, but if
> you believe in coffee and want to buy JO, then you have to buy and
> forget about it, as even if it will go up 10% you will be only even
> because of bid/ask difference.
> This is very illiquid ETN with only 50,000 shares outstanding (2
> million USD) and have expense ratio excluding crazy bid/ask difference,
> of 0.75%.
> Really not for everybody, even if Coffee I believe is a good investment.

Jan 30 03:23 PM

[SoYouThinkY...:]

While it is true that JO has relatively low volume, there is something you might want to keep in mind. The average volume over the last three months is 2700 shares a day. Over the last few weeks, the volume has more than doubled that average. Why? Because JO in particular and commodities in general have increased in price. If JO and commodities continue to do well (which I think they will) volume will skyrocket from here. When that happens, you will have very little problem getting out of your position.

JO and other commodity based ETFs and ETNs are just starting to catch on. I think they are great investment vehicles for those that do not want to wade into futures markets.

I compiled a list of all of the non-leveraged commodity based ETFs and ETNs and put them in a convenient google docs spreadsheet which you can save and download to excel. Take a look at soyouthinkyoucaninvest...

Jan 31 04:23 PM