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.
Key to successful crop yields is having an ideal temperature range of between 17 and 23 centigrade as well as steady climate and helpful soil conditions. Damage is being caused to coffee farmers in developed countries, according to a recent report by Cafedirect. Because of the rise in temperatures coffee growers have to move to higher altitudes. And the effect of rising temperatures is more disease caused by pests. As beans can only grow properly in a small temperature range, climate change is a major challenge to 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.
Making up about 70% of green coffee bean production, Arabica thrives at altitudes of over 4,000 ft in warm, humid climates, which along with the right soil conditions gives the bean its characteristic aromatic flavour. Most Arabica grows in the high altitudes of countries like Columbia, Brazil, Peru, Ecuador and Venezuela. The Santos grade of Arabica in Brazil is considered one of the best, with beans picked within the first 4 years of the coffee tree's life. While Robusta beans, which are a lower grade and grown mainly in South East Asia, are picked after 2-3 years, usually with Arabica 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. - 31876
Key to successful crop yields is having an ideal temperature range of between 17 and 23 centigrade as well as steady climate and helpful soil conditions. Damage is being caused to coffee farmers in developed countries, according to a recent report by Cafedirect. Because of the rise in temperatures coffee growers have to move to higher altitudes. And the effect of rising temperatures is more disease caused by pests. As beans can only grow properly in a small temperature range, climate change is a major challenge to 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.
Making up about 70% of green coffee bean production, Arabica thrives at altitudes of over 4,000 ft in warm, humid climates, which along with the right soil conditions gives the bean its characteristic aromatic flavour. Most Arabica grows in the high altitudes of countries like Columbia, Brazil, Peru, Ecuador and Venezuela. The Santos grade of Arabica in Brazil is considered one of the best, with beans picked within the first 4 years of the coffee tree's life. While Robusta beans, which are a lower grade and grown mainly in South East Asia, are picked after 2-3 years, usually with Arabica 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. - 31876
About the Author:
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 benefit from coffee commodity trading ideas here.
