Risk Warning: Your Capital is at Risk.
Coffee can be traded in several ways. In this guide, we’ll explain how to trade coffee as a commodity and where you can find regulated brokers in .
In a hurry? If you want to get started trading coffee today, here are brokers available in to consider:
Disclaimer: Availability subject to regulations.
Between 74-89% of retail investor accounts lose money when trading CFDs.
Read on to find out why coffee may or may not be the right commodity for you to trade.
Reasons You Might Trade Coffee
There are several compelling reasons investors might consider investing in coffee:
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.
Can You Hedge on the Supply Scarcity of Coffee?
- Bet on Supply Scarcity
- Bet on Global Growth
- Bet on Improving Health Story
- The Starbucks Effect
Coffee has its source of supply concentrated heavily in a few countries. Since coffee-growing requires the right climate and financial resources, this concentration is unlikely to change anytime soon.
Conditions such as climate change and political upheaval have the serious potential to disrupt the supply of the crop and send prices higher.
Bet on Global Growth
As a discretionary item, coffee benefits from strong global economic growth.
Investors optimistic about growth in emerging economies in Asia, Latin America, and Africa may want to invest in coffee. As these countries accumulate wealth, their consumption of coffee is likely to increase.
Similarly, investing in coffee is a way to bet on growing discretionary income in Western economies.
Bet on the Increasing Health Benefits of Coffee
Medical evidence paints an increasingly favorable picture of the health benefits of consuming coffee.
If more medical evidence emerges about these benefits, then consumer behavior may shift toward greater consumption.
The Starbucks Effect on Coffee and Investments
Consumers increasingly see coffee shops as fun and productive places to congregate.
Business professionals, students, and civic groups perform work and hold meetings in them. As coffee shops proliferate in popularity, coffee consumption should benefit.
Where Can You Trade Coffee?
If you are looking to start trading coffee and other agricultural commodities, here’s a list of regulated brokers available in to consider.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Ways To Trade Coffee
Coffee investors have several ways to trade the commodity:
|Method of Investing||Complexity Rating (1 = easy, 5 = hard)||Storage Costs?||Security Costs?||Expiration Dates?||Management Costs?|
|Coffee ETFs (ETNs)||2||N||N||N||Y||N||N|
What Are Coffee Futures?
The New York Mercantile Exchange (NYMEX), which is part of the Chicago Mercantile Exchange (CME), and the Intercontinental Exchange (ICE) offer the Coffee C futures contract, which is the world benchmark for Arabica coffee.
The Coffee C contract settles into 37,500 pounds of Arabica beans. The CME contract trades globally on the CME Globex electronic trading platform and has expiration months of March, May, July, September and December.
How Do Coffee Futures Work?
Futures are a derivative instrument through which investors make leveraged bets on commodity prices.
If prices decline, traders must deposit additional margin in order to maintain their positions. At expiration, the contracts are financially settled on the NYMEX but physically settled on the ICE.
Investing in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.
What Are Coffee Options on Futures?
The ICE offers an options contract on the Coffee C futures contract. Options are also derivatives instruments that employ leverage to invest in commodities. As with futures, options have an expiration date.
However, options also have a strike price, which is the price above which the option finishes in the money.
Options buyers pay a price known as a premium to purchase contracts. Learn more about options in our Options Trading Guide.
Therefore, options traders must be right about the size and timing of the move in Coffee C futures to profit from their trades.
What Are Coffee ETFs?
These financial instruments trade as shares on exchanges in the same way that stocks do. An ETN is similar to an ETF except that instead of holding the assets in a fund, it pays investors returns on the portfolio of assets.
In this sense, it is more like a bond. There are two popular ETNs that invest in coffee futures:
- iPath Dow Jones – UBS Coffee ETN
- iPath Pure Beta Coffee ETN
Here’s the live price ticker of iPath Dow Jones – UBS Coffee ETN:
Can I Buy Coffee Company Shares?
There are few pure-play public companies engaged in the production and sale of coffee. Most coffee producers are small and privately-owned.
For example, traders can purchase shares of one of India’s largest coffee producer, Tata Coffee Ltd (TCO.IN).
How Do Coffee CFDs Work?
One way to invest in coffee is through the use of a contract-for-difference (CFD) derivative instrument. CFDs allow investors to speculate on the price of coffee.
The value of a CFD is the difference between the price of the shares at the time of purchase and the current price. You can learn more about the benefits and risks of CFDs in our CFD Broker Guide.
Many regulated brokers worldwide offer CFDs on coffee. Customers deposit funds with the broker, which serve as margin.
The advantage of CFDs is that investors can have exposure to coffee prices without having to purchase shares, ETFs, futures, or options.
IMPORTANT: CFDs are not available in the USA due to local regulation, and regulated brokers do not accept US citizens or US residents as clients.
Should I Invest in Coffee?
Coffee prices can be very volatile, so investors should take that into account when deciding whether or not to invest.
Commodities provide traders with protection against inflation and a declining US dollar, as well as asset diversification.
There are three compelling long-term trends that could boost coffee prices specifically:
- Global Climate Change: Coffee might be a way to profit from long-term shifts in weather patterns. Increasingly hot temperatures and unpredictable hurricane seasons could create upheaval in the production of many crops including coffee.
- Emphasis on Healthy Living: Studies in the medical community continue to show more benefits from coffee consumption. This news has the potential to convert more individuals into coffee drinkers and drive coffee prices higher.
- Emerging Market Growth: Rising wages in emerging economies have the potential to transform consumption patterns. Discretionary items such as coffee could be the beneficiaries of this trend.
What Are The Risks Of Coffee Trading?
However, coffee investing has several risks as well:
- A strong US dollar could drive prices lower
- Overproduction by large suppliers could depress prices
- Economic weakness, in general, could curb consumers’ appetite for coffee
Expert Opinions On Coffee Trading
Experts see favorable supply/demand fundamentals boosting coffee prices.
They see weak harvests of Arabica beans and increasing demand for high-end gourmet coffee as the drivers of this trend.
“We expect prices to hit further highs on production downgrades, the decline in global stocks, and supply tightness that should keep markets fearful of any disruptions.“Sudakshina Unnikrishnan, Commodities Analyst at Barclays Capital
Word From A Marex Spectron Commodity Broker
James Hearn, co-head of agriculture at commodities broker Marex Spectron, agrees. He believes that low Arabica prices fail to take into account the impending shortage.
“It’s a material deficit; everyone can see there’s a problem coming.“James Hearn, Co-Head of Agriculture, Marex Spectron
Hearn notes that crop conditions in Brazil and tight demand have the potential to lift prices much higher.
He points to the Brazilian government’s sale of its supply, which was met with strong market demand. As government supplies get depleted, the potential for higher prices increases.
Is coffee the second most traded commodity?
Coffee is not the second most traded commodity after oil. While enormous amounts of coffee are traded each year, it isn’t even near the top of the most traded agricultural products. According to the Food and Agriculture Organization of the United Nations (FAO), in 2019, coffee was the 19th most exported agricultural product category by value. By weight, it didn’t even make the top 20.
If you’d like to learn more about how coffee is produced, or commodity trading in general, see these guides on:
Also see our guides on stock, CFD, options, and commodity brokers to find out which online trading brokerages are available in .