Given the copious global supply, coffee prices could remain near its five-year low, but exchange traded fund investors can still watch for potential catalysts that could tip the balance.
"With global production remaining high, we believe the current price is justified, but we are watching a number of catalysts that could drive prices higher," Nitesh Shah, Associate Director of Research at ETF Securities, said in a research note.
Specifically, Shah pointed to any rise in rust fungus and potential crop damage, intervention from the Brazilian government could absorb supply, or a stronger Brazilian real, which could encourage farmers to hold-off exports.
"We believe that coffee prices will be less sensitive to weather conditions in Brazil now that the Brazilian 2013/14 harvest is largely complete," Shah added. "Weather conditions elsewhere will also have a diffused impact on prices because production is fragmented in the countries that start their harvest in October."
Brazil accounts for about a third of the global coffee supply.
ICE Coffee futures are trading around $116.5 per pound, hovering close to its 5-year low. Additionally, speculative positioning is also heavily short and over one standard deviation below its 5-year average.
The iPath Dow Jones-AIG Coffee Total Return Sub-Index ETN (NYSEARCA:JO) has declined 26.3% year-to-date.
Max Chen contributed to this article.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.