Top Coffee Commodity Trading Tips, Watch Coffee Market Fundamentals
With a UN food agency report suggesting global food production needs to rise by over 70% by 2050, coffee commodity trading offers the keen trader some great opportunities to make profitable trades. Over the years coffee has been the most actively traded commodity after crude oil, and so inevitably changes in coffee futures prices are watched closely, especially as sudden weather changes can impact on crop yields. Coffee beans are grown in most countries between the Tropic of Cancer and the Tropic of Capricorn, that is tropical and sub-tropical regions, and so good levels of rainfall are important for this popular commodity.
Ideally, to achieve high crop yields growers want a temperature range of 17 to 23 centigrade, together with stable climate and encouraging soil conditions. According to a recent Cafedirect report, coffee farmers in developed countries are suffering damage to their crops. Rising temperatures are forcing coffee growers to shift to higher altitudes, and these higher temperatures encourage more disease caused by pests. Given that coffee beans are best grown with small temperature variations, clearly climate change will have a growing impact on coffee growers.
The main two varieties of any real economic significance to those following coffee commodity trading are Arabica and Robusta, both actively traded futures on major world commodity exchanges. The US is the biggest world consumer and importer of coffee, while the largest producer Brazil, produced almost 34 million (29% global output) 60-kg bags of coffee in 2007/8, mainly Arabica. The next biggest producer is Vietnam with a 15% world share at 17.50 m bags (Robusta), while Columbia was third with 12.40 m bags (Arabica) and an 11% share, and Indonesia was fourth largest producer in 2007/8 with 7.0 m bags.
Arabica, which represents about 70% green coffee bean production, is grown in warm, humid climates at altitudes above 4,000 ft, and this combined with the soil conditions helps it achieve its characteristic aromatic flavour. Arabica is mainly grown in the high altitudes of Latin America, such as Brazil, Peru, Venezuela, Ecuador and Columbia. One of the best grades of Arabica coffee in Brazil is Santos, where the beans are picked within the first 4 years of the coffee tree’s life. Normally with Arabica there is a long lead time of 4-5 years, while with the lower quality Robusta, grown in South East Asia, the beans are picked after 2-3 years.
Drought can cause crop yields to collapse, and so lead to coffee futures prices rising. If rainfall is too high this can also lead to lower crop yields, with similar impact on prices. Freezing can impact a crop for the current year and the following year. This is usually a problem for Arabica varieties in the higher altitudes in Latin America. Statistics show that in recent years serious freezing has happened in one in every six years in winter (June to August) months in the southern hemisphere.
The appearance of white blossom on coffee trees points to the first stages in coffee bean growth, after which over a period of between two weeks to 6-9 months green cherries appear, eventually becoming red and then black cherries. Each cherry holds two coffee beans. Most coffee production uses the “dry” method where cherries are stripped off the tree. Then the green beans are dried and graded, ready for shipping and roasting. On average about 2,000 cherries (4,000 beans) yield a pound of coffee.
You are no doubt excited to start your coffee commodity trading activities, so before you take some potentially profitable trades make sure you choose a broker with an accessible electronic trading platform. The Arabica benchmark on ICE Futures US is the Coffee “C” futures contract, and you can also get exposure to Robusta futures contracts through the exchange. Should you want to trade only soft commodities but not as futures, you have the option to use an agricultural ETF which tracks a soft commodity index. Using these various derivative and investment vehicles, the trader has some good options for gaining exposure to these exciting coffee commodity trading markets.
Focusing on agricultural commodities, the author, Marianna Gomes, contributes articles to the Commodity Trading Today website, a practical informational resource. Discover more about how you could gain from coffee commodity trading tips here.
categories: commodities,trading,markets
Tags: Cafedirect, Coffee Bean, Coffee Beans, Coffee Farmers, Coffee Futures, Coffee Growers, Coffee Market, commodities, Commodity Exchanges, Commodity Trading, Futures Prices, Global Food Production, Green Coffee, Markets, Profitable Trades, Soil Conditions, Stable Climate, Temperature Variations, Trading, Tropic Of Capricorn, Warm Humid Climates, Weather Changes, World CommodityPosted in
