Focus on Coffee Commodity Trading, Check Out the 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.
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.
Before you take some profitable trades as you embark on your coffee commodity trading activities, make sure you select a broker with an user friendly electronic trading platform. On ICE Futures US the Arabica benchmark is the Coffee "C" futures contract, and it is also possible to trade a futures contract for the Robusta bean variety through this global exchange. If you don't want to trade futures but still want exposure to soft commodities, you could use an agricultural ETF and track a soft commodity index. With these various derivatives and investment vehicles at their disposal, traders can gain exposure to these exotic coffee commodity trading markets. - 23217
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.
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.
Before you take some profitable trades as you embark on your coffee commodity trading activities, make sure you select a broker with an user friendly electronic trading platform. On ICE Futures US the Arabica benchmark is the Coffee "C" futures contract, and it is also possible to trade a futures contract for the Robusta bean variety through this global exchange. If you don't want to trade futures but still want exposure to soft commodities, you could use an agricultural ETF and track a soft commodity index. With these various derivatives and investment vehicles at their disposal, traders can gain exposure to these exotic coffee commodity trading markets. - 23217
About the Author:
The author, Marianna Gomes, covers agricultural commodities and writes articles for a helpful online resource ontrading commodities. Learn more about how you could gain from coffee commodity trading ideas here.
posted by X - Men @ 4:00 AM
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