Coffee Futures Buoy Commodity Indexes in 2014

For the last few years, commodities have dragged behind surging equities, as it seemed that the commodity supercycle was beginning to cool off.  2014, however, has seen broad commodity indexes outpace equities. Beating gains of just over 2% in a little over four months isn’t anything to write home about, but hard assets are holding their own nonetheless. However, most commodity indexes are benefiting from one hard asset in particular, coffee [for more commodity news and analysis subscribe for our free newsletter].

Coffee futures have had a rough go over the past few years, losing 12%, 43%, and 33% in 2011, 2012, and 2013, respectively. Thanks to a drought in Brazil, where the vast majority of coffee beans are produced, prices have been surging in 2014. In fact, coffee is by far the best performing commodity of 2014, with returns about 40% higher than the next nearest commodity. While a number of major commodities are having strong years on their own, coffee is clearly leading the way. Here is a look at the 5 best-performing major commodities YTD:

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Nothing even comes close to coffee’s gains, and it has been one of the biggest reasons why broad indexes are outperforming equities. The Dow Jones UBS Commodity Index has notched gains of more than 8% this year, compared to gains of just 2% for the S&P 500.

The Bottom Line

For active traders and those who keep a close eye on commodities day in and day out, making bets on a particular asset like coffee can be very beneficial, but for long term retail investors, it can be a nightmare. Sure, coffee is up big so far this year, but that is only after it got hammered for three years in a row. Anyone investing for the long term is better off obtaining broad exposure to commodities to capture any outliers like coffee in 2014 or any number of examples over the past few years of a soaring single commodity or commodity group.

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Disclosure: No positions at time of writing.

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