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Here's Two Coffee ETN’S Ripe For A Pickin’…

Jan. 14, 2015 12:03 AM ETCAFE, JO
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Here's Two Coffee ETN's Ripe for a Pickin'…

"I put instant coffee in a microwave and almost went back in time." - Steven Wright

Good day investors!

It's early morning here in paradise. I just poured my very first cup of coffee for the day; a Jamaican Blue Mountain bean, ground, brewed, poured and consumed black. I picked up a very large sack of bean this weekend and have been attacking it like a drug addict. Outside of the regular old Dunkin Donuts coffee, which is harder for me to come by, this home brewed Jamaican is my favorite.

This bean, in my mind, is the Guinness of the coffee world. Perfectly smooth with a light hint of chocolate. Others prefer Starbucks blends, or Tim Horton's or Sheila's Diner down the block. Still others stick to Folger's or Maxwell House… but I'll stand by my Blue Mountain.

I'm no coffee connoisseur, but I do like quality ingredients in my coffee. And since I drink my coffee black only 2 ingredients are involved… coffee beans and water. I actually like to taste the coffee. My wife, on the other hand, puts all sorts of sweeteners and cream and flavoring in hers. By the time she's ready to drink it, it's not really coffee anymore. It's more of a candy bar with a light coffee flavoring.

Millions of us drink the stuff every morning. It's one of the world's most important commodities, so it's going to be a shame to see it go away. Imagine a world with NO coffee. Imagine waking up and having to drink tea? Sorry my British friends, tea just don't cut it.

I'm sipping my Jamaican blend right now, savoring it as if it were my last cigarette before quitting day…

Yes, I'm probably over exaggerating here, but the simple old coffee bean is in serious trouble.

There's drought in Brazil, war and disease in Africa and yes, horrible fungus' affecting the crop worldwide. In previous issues, we've covered this fungus and what it's capable of. (See earlier issues in case you missed them).

Today, we'll talk about how to profit from the upcoming crop failures due to the fungus. Now this fungus is awful and it is spreading. But even if it takes another year or two to negatively affect crops globally, the drought in Brazil has caused enough damage to the coffee plants that even with rains coming, fruits will not properly ripen… so going long on coffee plays is a good idea, even if the fungus growth rate is slow.

In our last issue, we looked at the coffee futures for March and May. The chart showed us how coffee could run from 160 to roughly 225 to 230 in the coming months. Now, let's look at some other opportunities that are simpler plays for some of us.

Here are two Coffee ENT's (similar to ETFs) that look fairly ripe right now.

iPath Coffee SubIndex Total Return ETN (JO)

iPath Coffee SubIndex Total Return ETN (JO)

The Coffee Subindex (JO) give us exposure to the Coffee Futures market without having to play contracts. It works similar to and ETF where you can trade in and out and never have to worry about expirations or taking delivery. Its tied to a single futures contract and rolls over on each new futures contract.

There's tons of volume in this ETN so liquidity is not an issue with trading it. The best part of using ETN's is the lower cost basis to play the commodity.

We've also got the iPath Pure Beta Coffee ETN (CAFE)

iPath Pure Beta Coffee ETN (CAFE)

The iPath Pure Beta Coffee ETN (CAFÉ) is similar to JO in exposure to the Coffee futures market, however there are two important differences. One, CAFÉ is not tied to a single futures contract. It may roll into and out of multiple contracts. Two, the daily trading volume is much much less than JO.

With CAFÉ, daily volatility is much greater. One trade can send it up 5% or down 5%. Eventually, it does even out to the futures contract, but the liquidity is an issue.

Now that I'm finishing my third cup of joe, and the jitters are slowly creeping up on me. It's time to hit the gym to burn off some caffeine…

"We want to do a lot of stuff; we're not in great shape. We didn't get a good night's sleep. We're a little depressed. Coffee solves all these problems in one delightful little cup." - Jerry Seinfeld

Here's to good trades,

AJ Caesar

Analyst's Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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