According to statistics from international organizations, coffee on the stock exchange ranks second among commodities. This product is the main source of income for many developing countries. The international coffee trade has been actively developed for centuries. The first shop selling tonic drinks was opened in 1457. Since then, the product has been exported and becoming increasingly popular.
Today, coffee is consumed in almost every country in the world. This financial asset is characterized by increased liquidity and is ideal for profitable trading operations. This article will explain how coffee is traded on the stock and how to work properly with the demanded product.
Coffee Futures
The most popular are two types of coffee – Arabica and Robusta. The exchange rate of coffee of these two varieties and futures for their supply is displayed on the stock.
Coffee is a commodity, and trading in futures takes place on commodity stocks, such as the ICE intercontinental exchange. Coffee also can be bought at the New York Mercantile Exchange NYMEX, at the London Futures Exchange LIFFE, and others. Here is everything you should know about coffee before you are involved in the international coffee trade process.
Coffee Varieties
It is important to understand that of the 60 species of the coffee tree, only two are grown on an industrial scale. There are two varieties traded on the international market: Arabica and Robusta. Each of these types is sold and bought using certain futures contracts. Trading takes place on different stocks. Some markets offer the purchase of one variety, while others offer a choice of both options.
Arabica
Classification of coffee beans plays a significant role in the international coffee trade because each variety has its distinctive features. The Arabica variety has a rich taste with pronounced acidity, while Robusta has a relatively simple taste, bitter with more caffeine.
Arabica trees grow in subtropical climates. They need fertile soil and regular pest treatment. More than 70% of coffee beans belong to this variety. You can buy the finished product in specialty stores or supermarkets.
Robusta
The Robusta variety is usually traded in the UK market. The price of coffee on the London Stock Exchange is determined in pounds sterling. Commodities can be sold or bought through option and futures contracts.
To earn money by buying and selling commodities, you need to study the specifics of futures and understand how coffee is traded on the stock exchange. Currently, most derivatives are bought and sold on the ICE Intercontinental Market.
Coffee Producing Countries
The world coffee market is considered one of the most profitable. In terms of volume, it is second only to oil. Coffee-producing areas in the world are about two dozen countries. This unique product can be grown only in certain climatic conditions. Therefore, the main plantations are located in the tropics. It is worth saying that the grains obtained in different countries differ. Each type of coffee has its unique properties.
Next, we will analyze in detail the countries that produce coffee. The list is quite long. It includes about fifty states. Of the Latin American countries, the largest coffee producers are:
- Brazil;
- Colombia;
- Mexico;
- Costa Rica, and many others.
Do you want to know which country leads in the international coffee trade? Brazil is the largest producer of coffee. The state occupies a special place in the world coffee trade. This country accounts for about a third of the plague market. More than two million tons of coffee beans are grown here every year. About 80% of the crop is Arabica.
Interestingly, Brazilian companies account for a small market share because Americans own most plantations. Note that the climate of South America is ideal for growing coffee. In Brazil, conventional varieties are mostly grown. The country is not represented in the segment of elite coffee.
How To Trade Coffee?
To earn on trades, you’d better find a reliable and well-known broker. To open the deal, you should go to the platform, select Coffee, indicate a small lot and click the Buy button:
- After a few working days, the price of coffee will rise, as your profit will also do;
- Now to get the money, you need to close the deal;
- After that, the profit will be credited to your balance sheet.
The brokers offer many assets, including stocks, commodities, and more. It is a pleasure for me to work here – everything is clear and simple.
The recommended initial deposit with the broker is $ 250, as it is recommended to open transactions for at least 10% of the deposit amount. This will allow you to open multiple trades at once and stick to risk management.
How Is The Price For Coffee Formed?
The price for coffee in the international coffee trade is determined on several world sites. The activity of market trading and the mood of the main exchange participants directly impact the final value of goods. In addition, experts identify several objective factors on which the current price of coffee on the stock exchange depends:
- Weather and climate conditions. If the weather conditions in the countries-producers are unfavorable, the volume of delivered products will be sharply reduced. Reduced supply will have a direct impact on the value of marketable goods. The price will rise, there will be a shortage in the market.
- The exchange rate of national currencies of producer countries. The higher the quotation of these currencies, the more expensive buyers will pay.
- Global demand for coffee. The more popular a product becomes, the higher its market value. At the moment, the beans of the coffee tree are used to make some desserts and many drinks.
- The political and economic situation in the territory of exporting countries. Military conflicts or protracted crises can have a negative impact on the cultivation of coffee trees and the sale of commodities.
More Factors Affecting The Price Of Coffee
It is important to monitor the status of your investment in coffee and be aware of anything that may affect its price.
- The International Coffee Organization (ICO) publishes monthly reports on coffee prices, demand, and supply.
- Coffee: World Markets and Trade is a biennial report from the United States Department of Agriculture (USDA) published in June and December. It includes data on trade, production, consumption, and stocks in the US and the world, as well as an analysis of events affecting the world coffee trade:
- The Trader's Commitment (COT) report provides information on the short-term volatility that manifests in intraday traders. Short-term speculators in the semi-annual reports can use the weekly COT report published every Friday by the Commodity Futures Trading Commission (CFTC).
COT For International Coffee Trade
While the U.S. Department of Agriculture's semi-annual report provides medium- and long-term trends in coffee production, the Traders' Report (COT) provides information on short-term volatility that intraday traders can use to make a profit.
Thus, during the break of the semi-annual report, short-term speculators can use the weekly Traders' Report (COT) published every Friday by the Commodity Futures Trading Commission (CFTC). It presents the values of the open interest of major players and producers in the coffee futures market as of Tuesday's close of the same week. And yet, it allows a much deeper understanding of the market.
Traders can either follow the open interest of speculative capital weekly or wait until the market is overbought/resold to take the opposite position.
ETFs & Stocks
Another option for the international coffee trade is ETF. It is an investment fund that directly monitors the dynamics of the coffee market and is traded on the stock exchange in the form of ordinary shares. The investor gets access to coffee futures without having to trade them.
Or you can trade the securities of the Invesco DB Agriculture Fund (DBA). It tracks an index of 10 futures contracts for agricultural commodities: corn, soybeans, wheat, sugar, cocoa, coffee, cotton, livestock. Rebalancing is carried out annually in November. The commission of the fund, however, is high – 0.94%.
In addition to trading futures on coffee on the stock exchange, you can invest in shares of corporations that produce and sell it, which can also bring the investor a profit.
Among the main coffee companies are:
- Nestle SA. A multinational corporation that is one of the world's leading coffee producers, purchasing it from producer countries. Owns one of the most famous coffee brands – Nescafe.
- Sarah Lee. One of the world leaders in the coffee market, operating in more than 60 countries and supplying products to more than 180. Owner of brands such as Pilao and Moccona.
- Tchibo GmbH. A German company is representing the brand of the same name and launching a whole line of coffee, including elite.
- JM Smucker Company. Owner of the main American coffee brand Folgers bought from the multinational giant Procter & Gamble. In addition to it, it represents many well-known brands in different countries.
- Starbucks. Although the company's business is focused more on the coffee network than on the production of coffee beans, the shares of this corporation are a great option for investors who want to make money in the coffee market.
In the international coffee trade, the shares of these companies may be more profitable than the trade-in coffee itself. In a period of high demand, there is an opportunity to get rich by reselling coffee shares. The exchange shows a cyclical change in prices, especially for commodities. By choosing the best time for the market, the trader will increase his chances of success.
Application Areas
The main area of use of coffee beans is the food industry – the aromatic beverage is consumed around the world. There are a huge number of ways to roast and then brew coffee. However, it is not only used as a beverage. Roasted coffee beans are also used in the food industry as a stand-alone product – for example, in desserts.
Coffee does not claim the role of medicine, but the benefits of this regular drink have been proven. This reduces the likelihood of developing Parkinson's and Alzheimer's diseases, strengthens the vascular system. In general, a tonic effect is guaranteed for the body, but with a caffeine overdose, the effect is reversed – there will be an effect of oppression.
In cosmetology, coffee is used as an ingredient in care products: scrubs, masks, gels, soaps. Coffee flavors are popular, and coffee is used in perfumery to kill odors during testing. However, all these areas consume only a small part of coffee beans, the vast majority of which are used to prepare beverages. To make money on the sale of popular goods, you should determine the unit of change of coffee on the stock exchange. After that, the market player will be able to calculate the value of one futures contract and determine the associated costs.
Many millions of cups of coffee are drunk in the world every year. Known since the ninth century, this drink has gained immense popularity, which has become the main reason that coffee has managed to occupy and secure the status of one of the most important goods sold today.