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INVESTMENT ON COFFEE: FUTURES, ETF & STOCKS INVESTMENT ON COFFEE: FUTURES, ETF & STOCKS
Investing in coffee is a fairly interesting option for diversifying your portfolio and for short term investment. There are various ways to invest in... INVESTMENT ON COFFEE: FUTURES, ETF & STOCKS

Investing in coffee is a fairly interesting option for diversifying your portfolio and for short term investment.

There are various ways to invest in coffee, but any method you choose, the profits depend entirely on the production conditions that causes constant price fluctuations.

Investing in commodities has always been an alternative to forex trading. Investing in commodities also allows the diversification of the portfolio. There is a particular commodity that cannot be considered 100% like this, but it is one of the most consumed commodity on the planet: coffee. Investing in coffee futures is so profitable? How you can do that?

The coffee futures market is very active as coffee is widely used in both developed markets and emerging markets.

Being used only as a beverage, this commodity is attractive especially for short-term investors who want to speculate on price changes caused by the demand and supply factors.

Its price is subject to large price fluctuations in the short term and despite being a great opportunity, it is also characterized by a considerable risk.

High price fluctuations also depend on production which is linked directly to the weather conditions of the grain producing countries.

Coffee futures trading takes place through the listing of two main varieties, ‘Coffee Arabica’ and ‘Coffee Robusta’. Arabica futures are negotiated in the United States at Intercontinental Exchange, while Robusto futures are being traded in London on London International Financial Futures and Options Exchange (LIFFE). The Robusta mixture has less flavor and its quality is considered inferior to Arabica.

Arabica-vs-Robusta-Coffee

Since it is impossible to invest in the physical coffee grain and considering the weather conditions to carry out a plantation, the market offers other opportunities to invest on coffee: Futures, ETFs and stocks.

Coffee Futures are primarily designed to be protected against fluctuations in prices or to add a different investment to the portfolio or to speculate on short-term price fluctuations.

The standard futures contract is the “Coffee C”, which refers to Arabica’s price. They are traded on the New York Mercantile Exchange, with prices in US Dollars per pound. The value of a contract in terms of coffee weight is 37.500 pounds and it has a minimum fluctuation of $ 0,0005 per pound.

Contracts are issued 5 times per year: March, May, July, September and December and they last for 23 months.

ETFs (Exchange Trader Funds) allows to tie the investment to coffee prices without worrying about the deadlines imposed by other types of financial instruments.

They have an exposure at a relatively low price and offer very high liquidity and transparency.

Linked to the performance of coffee futures there are two important funds: the iPath Dow Jones-UBS Coffee Total Return ETN (JO) and the ETF Securities for European markets and offers the opportunity to invest in the short term.

Given the nature of the coffee industry, investing in listed companies that sell the same grain involved in production can be a real challenge.

However, buying on the stock market is almost impossible as most of the world’s production comes from small private entities or from farmers.

An option might be investing in the shares of Tata Coffee Ltd., an Indian company engaged in the production of the coffee sold in Asia, and Nestlé (NESN).

Futures and ETFs are the best solutions, given the possibility of access to the market, while the stock market may be more risky.

 

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