When it comes to commodities, investors typically make a classic
mistake: They shun them when they are out of favor, and they load up on
them when prices are surging.
The contrarian view is so much more profitable.
For example, I noted a few months ago
that an extended period of oversupply had pushed coffee prices down to
multi-year lows, but added that "signs are emerging that current coffee
prices are causing too much distress among coffee growers. Yearlong
protests in Brazil, the world's largest coffee producer, has led the
government to take action to prop up prices. The iPath Pure Beta ETN (Nasdaq: CAFE), which had lost more than 30% of its value at that point in 2013, has rebounded 50% since then.
Coffee prices are simply responding to the first rule of economics:
Falling prices lead to falling supply, which eventually moves below
levels of demand, providing a boost to prices. In the case of coffee, a
change in growing conditions also affected those factors. (more)
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