Top Coffee Commodity Trading Tips, Watch Coffee Market Fundamentals
There is potential for coffee commodity trading observers to make some great profitable trades, after a UN food agency report pinpointed the need for global food production to increase by over 70% by 2050. Over the years, along with crude oil, coffee has been a major traded commodity, so the markets will follow closely any material change in coffee futures prices, especially when crop yields can be affected by dramatic weather changes. An important factor for this popular commodity is good rainfall, so it's not surprising that most coffee beans grow between the Tropic of Cancer and the Tropic of Capricorn.
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 two most important varieties for followers of coffee commodity trading are Arabica and Robusta, with both strongly featured as futures on global commodity exchanges. Brazil, a major Arabica coffee producer, is also the largest global producer with around 34 million (29% global output) 60-kg bags of coffee in 2007/8. Meanwhile, the US is both the largest global consumer and importer of coffee. Vietnam comes in second place with a 15% world share at 17.50 m bags (Robusta), while in third place is Columbia with an 11% share producing Arabica, and Indonesia comes in fourth with production of 7.0 m bags in 2007/8.
Arabica grows well at over 4,000 ft in warm, humid climates, and it contributes around 70% of green coffee bean production, and this along with helpful soil conditions is responsible for the bean's characteristic aromatic flavour. The high altitude countries like Columbia, Brazil, Peru, Ecuador and Venezuela are ideal for growing Arabica beans. Arguably one of the top grades of Arabica is Santos from Brazil, its beans being picked within the first 4 years of the coffee tree's life. Meanwhile, the lower grade Robusta beans from South East Asia are picked after only 2-3 years, in contrast to Arabica where normally there is a longer lead time of 4-5 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 coffee tree first produces white blossom and then over a period of two weeks to 6-9 months green cherries begin to grow and these fill out into reddish and then black cherries. Each cherry contains 2 coffee beans. Most coffee is processed using the "dry" method where the cherries are stripped off the tree and the green beans are dried and graded, ready to be shipped for roasting. A rough calculation is that about 2,000 cherries (4,000 beans) produce one 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.
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 two most important varieties for followers of coffee commodity trading are Arabica and Robusta, with both strongly featured as futures on global commodity exchanges. Brazil, a major Arabica coffee producer, is also the largest global producer with around 34 million (29% global output) 60-kg bags of coffee in 2007/8. Meanwhile, the US is both the largest global consumer and importer of coffee. Vietnam comes in second place with a 15% world share at 17.50 m bags (Robusta), while in third place is Columbia with an 11% share producing Arabica, and Indonesia comes in fourth with production of 7.0 m bags in 2007/8.
Arabica grows well at over 4,000 ft in warm, humid climates, and it contributes around 70% of green coffee bean production, and this along with helpful soil conditions is responsible for the bean's characteristic aromatic flavour. The high altitude countries like Columbia, Brazil, Peru, Ecuador and Venezuela are ideal for growing Arabica beans. Arguably one of the top grades of Arabica is Santos from Brazil, its beans being picked within the first 4 years of the coffee tree's life. Meanwhile, the lower grade Robusta beans from South East Asia are picked after only 2-3 years, in contrast to Arabica where normally there is a longer lead time of 4-5 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 coffee tree first produces white blossom and then over a period of two weeks to 6-9 months green cherries begin to grow and these fill out into reddish and then black cherries. Each cherry contains 2 coffee beans. Most coffee is processed using the "dry" method where the cherries are stripped off the tree and the green beans are dried and graded, ready to be shipped for roasting. A rough calculation is that about 2,000 cherries (4,000 beans) produce one 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.
About the Author:
The author, Marianna Gomes, covers soft commodities and writes articles for a practical online resource ontrading commodities. Learn more about how you could gain from coffee commodity trading ideas here. Get a totally unique version of this article from our article submission service