The advantage of investing in this global dependence

I was crazy about my car.

Thunder roared in the sky, rain and wind swirled around me, and I desperately wanted to be in my little red Toyota so I didn’t have to keep slapping around in my rain-soaked shoes.

But suddenly a bright green mermaid logo peeked out of the fog on the other side of the parking lot. And I found myself walking past my car to the Starbucks lighthouse.

When the coffee siren song calls a caffeine addict like me, well … not even the monsoon will stop me.

And as an investor, this can make you consider the history of coffee supply and demand, if you haven’t already.

This is a smart move right now.

Yes, coffee has a disturbing history: it is one of the most volatile commodities on the US and global futures markets. Every year, sentiment and prices are shaped by weather conditions in key growth regions. When the forecast is accurate and there are no fungal infections devastating crops, prices are lower.

But then a critical area of ​​coffee growth was affected by, say, a devastating drought, such as Brazil, the world’s largest producer of more than a third of the world’s coffee supply, in 1986. And coffee prices soared. (By the way, there are additional drivers for volatility, such as constant currency fluctuations.)

Ultimately, this type of unpredictable, abrupt movement scares investors.

But the fact is that global coffee demand is expected to double by 2050.

Meanwhile, we are behind a three-year supply shortage as critical growing regions such as Brazil continue to experience severe and volatile drought.

In addition, the genetic diversity of Arabica coffee beans – the highest quality and most consumed beans – is extremely low. This means that the plant cannot adapt to changes in the environment quickly enough, which emphasizes the fragile grip of the culture for survival.

Not surprisingly, stocks are struggling. The International Coffee Organization expects coffee production to reach a record 153.9 million bags worldwide for the 2016-2017 season. But demand is expected to reach 155.1 million bags. That’s a difference of 1.2 million bags.

Yes, much of this knowledge is at the price of coffee. But it is clear that the harvest is facing an “existential crisis,” as Rick Reinhart, executive director of the Special Coffee Association, said.

And this is the long history of supply and demand.

I know you’re probably thinking, “Everything’s fine, Jess. But what does that mean for investors in the short term?”

The price of coffee is heating up. The consensus estimate is a 5% rise in Arabica coffee prices next year. But this is conservative.

As one expert puts it: “Short-term volatility should give us a double-digit move. This is not a crash, a huge profit, but the extreme moods and forecasts of traders are a solid profit.

And there are two ways to invest in it: iPath Bloomberg Coffee ETN (NYSE: JO) and on iPath Pure Beta Coffee ETN (NYSE: CAFE)launched in 2008 and 2011 respectively. If you take one of them, withdraw money after a profit of 10% or 20%.

With all that said, I think it’s time to go catch my next cup of coffee. (I hope not in the rain.)