Focus on Coffee Commodity Trading, Coffee Market Tips

There are some great opportunities for coffee commodity trading observers to make some gainful trades, after a UN agency report urged that global food production needs to rise by over 70% by 2050. With crude oil coffee has over the years been a top traded commodity, so clearly any notable change in coffee futures prices are followed closely, particularly when a dramatic change in weather can impact crop yields. Good rainfall levels are key for this popular commodity, and so you will find most coffee beans grown in countries between the Tropic of Cancer and the Tropic of Capricorn.

Climate is crucial for success in achieving good yields as well as having an optimum temperature range of between 17 and 23 centigrade and favourable soil conditions. A recent Cafedirect report showed the gradual damage caused to coffee farmers in developed countries. One clear impact of rising temperatures is coffee growers needing to move to higher altitudes. Another effect is more disease caused by pests due to the temperature rises. The climate change challenge is significant to coffee growers because the beans can only grow properly in a relatively narrow temperature range.

For those who follow coffee commodity trading the two main varieties of economic importance are Arabica and Robusta, both highly traded futures on global commodity exchanges. While the largest global coffee producer is Brazil with around 34 million (29% global output) 60-kg bags of coffee in 2007/8, and mainly Arabica, the US is the biggest world consumer and importer of coffee. In second place with a 15% world share at 17.50 m bags (Robusta) is Vietnam, while Columbia with a 11% share was third producing Arabica, and with production of 7.0 m bags in 2007/8 Indonesia was fourth largest producer.

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.

A drought can lead to coffee futures prices rising because a crop yield collapse hits supply. Lower crop yields due to higher than normal rainfall may also lead to higher prices. The crop for both current and the following year can be affected by freezing, which can be a problem particularly in Latin America for Arabica varieties in the higher altitudes. Over recent years serious freezing has occurred once in every six years in winter (June to August) months in the southern hemisphere, according to data. The coffee commodity trading observer needs to weigh up all these factors before they enter trades.

The first stages in coffee bean growth is the appearance of white blossom on coffee trees, followed by growth of green cherries from two weeks to 6-9 months, which eventually become reddish and then black cherries. There are two coffee beans in each cherry. The “dry” method accounts for most coffee production where cherries are stripped off the tree before the green beans are dried and graded, then shipped for roasting. Broadly speaking one pound of coffee comes from around 2,000 cherries (4,000 beans).

With your coffee commodity trading system set up and having approached a broker for an electronic trading platform, you are ready for profitable coffee trades. On ICE Futures US there is a Coffee “C” futures contract which is the Arabica benchmark, while the exchange also offers a Robusta futures contract. Alternatively, with NYSE Euronext route there are two Robusta coffee futures contracts available to trade on the London LIFFE market, along with other soft commodities like white sugar, raw sugar, cocoa and rapeseed. If you only want exposure to soft commodities without trading futures you could invest in an agricultural ETF, tracking a soft commodity index. With these derivative and investment funds you have a good choice for gaining exposure to dynamic coffee commodity trading markets.

The author, Marianna Gomes, covers soft commodities and writes articles for a practical website ontrading commodities. Discover more about how you could gain from coffee commodity trading tips here.