Choose how you want to trade coffee. To open a position in a stock or ETF, go online and log into your trading account. To place the deal and get the best price, contact your futures broker. Check your positions screen once you’ve entered the transaction to make sure your coffee trade is included in your portfolio.
Coffee futures are highly leveraged and volatile investments, with significant price swings. Never risk money you can’t afford to lose when trading.
How do I get started investing in coffee futures?
Coffee is the world’s second most traded commodity, after crude oil. It’s ingrained in our daily lives, and it’s a common sight on many street corners and global demand has risen dramatically in recent years. However, it can be a complicated, sophisticated, and volatile asset. Do your study on how and where it’s cultivated, as well as the potential financial risks linked with your daily bean, to maximize your earnings.
Given that you’re betting on how much coffee will sell for, each of the three investing alternatives available for this real commodity comes with risk.
Buy coffee ETFs.
ETFs are a sort of investment that consists of a collection of commodities, equities, bonds, or currencies. They allow for diversification across an entire industry by following its overall profitability.
Coffee ETFs that are based on commodities use an arbitrage technique to allow investors to track the performance of the entire coffee market.
- The iPath Dow Jones-UBS Coffee Subindex Total Return ETN (JO) follows an index of coffee futures contracts.
Is there a coffee futures ETF?
Coffee is unquestionably one of the most popular beverages on the planet. The rich aroma of brewed coffee has made it equally popular among the old and new generations, since it is one of the ‘breakfast commodities’ along with orange juice. Every day, more than 2.25 billion cups of coffee are consumed around the world. Over 90% of coffee is produced in developing countries, mostly in South America, whereas consumption is concentrated in developed economies. Coffee is the most valuable and commonly traded tropical agricultural product, with 80 percent of the world’s coffee produced by 25 million smallholder farmers.
Growth in the world of coffee consumption
Coffee consumption in the world has increased from 146.98 million 60 kilogram bags (the standard measure for coffee) in 2012/13 to roughly 165.35 million 60 kilogram bags in 2018/19. With approximately 500 million cups consumed every day, the United States is the world’s greatest coffee consumer. In 2019/20, the United States consumed a total of 27,430,000 60kg bags. However, when it comes to average per capita coffee consumption, the Netherlands leads the list with 8.3 kg per capita, compared to 3.5 kg per capita in the United States.
However, there are other countries where coffee is not widely consumed. China, the world’s most populous country, has one of the lowest coffee consumption rates, consuming only one cup per year on average. Coffee consumption, on the other hand, is increasing at a pace of 30% each year, compared to a global rate of 2%.
Investing in Coffee
Investing in the coffee market can be done in a variety of ways. There are a variety of products and services that are dependent on or related with coffee, just as there are with every commodity. Direct investment is exemplified by coffee plantations. Due to the concentration of coffee production in a few countries, variables such as climate change may have an impact on the investment.
Another option to consider is soft drink makers and other companies that market coffee-based products. If you don’t want to invest directly in coffee production, companies like Nestle, who offer coffee-based goods like Nescafe and Nespresso, are an excellent option.
Coffee ETFs
When it comes to coffee, there is just one type of exchange-traded fund, or ETF. These coffee ETFs are based on a coffee futures index. The iPath Dow Jones-UBS Coffee Subindex Total Return ETN is one such ETF (JO). The iPath Pure Beta Coffee ETN is another ETF that tracks the performance of the coffee futures index.
An ETN is not the same as an ETF. While equities ETFs hold the stocks in the index they monitor (for example, if the ETF tracks the S&P 500, it will own stocks from all 500 businesses), an ETN does not provide investors ownership of the assets. They solely pay out the returns of the index they’re following. As a result, ETNs resemble debt securities.
iPath Dow Jones-UBS Coffee Subindex Total Return ETN (JO)
Total Return of the iPath Dow Jones-UBS Coffee Subindex By owning coffee futures contracts in the most recent month, ETN tracks the Dow Jones Coffee Index. The fund also contains cash collateral invested in US Treasury bills, as well as the interest rate collected on those bills. The fund’s cost ratio is 0.75 percent. Because the fund’s holdings are futures contracts, there is no dividend yield. The overall value of the assets exceeds $100 million.
The iPath Pure Beta Coffee ETN (CAFE)
The Barclays Capital Coffee Pure Beta Total Return Index is tracked by the iPath Pure Beta Coffee ETN. This, like JO, holds coffee futures contracts but has a different investing strategy. This fund has a 0.75 percent cost ratio, similar as JO. The overall assets, on the other hand, are only worth $5 million.
Climate change, political upheaval, and fluctuations in supply and demand all contribute to the volatility of coffee futures.
Coffee ETF, Coffee companies, and ‘Coffee the commodity’
You won’t actually own any coffee firms if you invest in coffee ETFs because they track an index and hold coffee futures contracts, which are a commodity.
When it comes to purchasing coffee as a physical commodity, there are a number of aspects to consider. Because most coffee production is concentrated in a few countries, issues such as climate change and political upheaval can have a rapid impact on pricing. Demand is another element to consider. Because coffee is not a required basic like wheat or rice, its demand is mostly determined by disposable income and spending habits. Coffee, like other commodities, is traded in US dollars. A strong US dollar can lower coffee prices, while a weak dollar, on the other hand, can raise them.
Biggest coffee companies in the world
Starbucks, Nestle, Restaurant Brands, Dunkin’ Brands, and Coca-Cola are some of the most well-known corporations in the coffee sector or that produce coffee-based products.
Starbucks
When it comes to coffee and coffee shops, Starbucks is one of the most well-known names. With more than 30,000 stores in 70 countries, they are the world’s largest coffee shop business. Starbucks, despite being essentially a coffee store, offers a wide range of products, including teas, hot chocolates, smoothies, iced drinks, and a variety of food items. Starbucks has a $115 billion market value. They increased their net revenue from $14.9 billion in 2013 to $26.51 billion in 2019. With $16.65 billion, the United States brought in the most money.
Dunkin’
Dunkin’ Donuts is the world’s second-largest coffee company. The company is also one of the largest donut shops in the world, with roughly 12,900 locations in 42 countries. Donuts, bagels, coffee, and munchkins donut holes are among their offerings. Inspire Brands purchased the company in 2020 after it was initially purchased by Baskin Robin corporate company Allied Domecq. In 2019, Dunkin’ Brands earned revenue of around 1.37 billion dollars, up from 811 million dollars in 2015.
Tim Hortons
Tim Hortons is the third-largest coffee restaurant in the world. When it comes to coffee, the Canadian international fast food restaurant company with over 4,846 locations in 14 countries is a household name. Restaurant Brands International bought the company, which also operates Burger King and Popeyes chicken restaurants. Their income in 2019 was estimated to be around $3.34 billion US dollars.
Why do we like Starbucks?
Starbucks is one of our favorite companies for a variety of reasons, including the fact that they are one of the world’s largest coffee companies. Starbucks is widely regarded as being overpriced. In some ways, they are correct. A cup of coffee for $5 is a touch excessive, but is that really what we’re paying for?
Starbucks has been the go-to spot for meets, dates, and casual meetings over the years. Starbucks has evolved from a coffee shop to a place where you may spend time with your friends, family, or even coworkers, given that many business meetings are held there. Also, as the number of remote workers grows, more individuals are turning to Starbucks as a place to work.
So, the explanation is that they are not paying $5 for a cup of coffee; rather, they are paying for the experience and ambiance.
Here are a few more indicators that Starbucks is structured to withstand adversity.
Brand Loyalty
Starbucks is one of those companies that knows how to treat their consumers well and keep them coming back. Customers associate Starbucks with coffee because of the additional food options and the ambiance of the stores. Aside from that, they have a really excellent customer loyalty program. It allows them to place their orders ahead of time and delivers free hot coffee or tea refills in-store. You’ll also earn free snacks and food if you reach the top of the loyalty tier.
Prior Experience
When we look at how Starbucks dealt with prior recessions, we can see that they concentrated on regaining their customers’ trust. They began by conducting a poll that included questions regarding the customer experience. As a result of the overwhelming response, they adopted several of the customer recommendations. This helped them get through a difficult period. Even though this does not guarantee that companies would perform in future recessions in the same manner, their focus on customer satisfaction will go a long way toward helping them weather the storm.
Diversification
They began selling their coffee in supermarkets to capitalize on the existing brand loyalty and reputation. They’ve also worked with a number of delivery services and are extending its drive-thru and smartphone ordering options. Customers will be able to interact with the brand in a variety of ways thanks to all of these opportunities.
One of our top 20 stocks to own for the next 20 years is Starbucks. The other 19 can be found in The 8 Step Beginner’s Guide to Value Investing, our best-selling book.
How do I get into the coffee business?
Instead, invest in Pure Beta Coffee ETN to reduce your risk and oversight (CAFE). Unlike the other coffee-based ETF, this one does not roll over every month, instead deciding whether to move depending on factors such as contago, which is a monthly change in commodity prices due to the storage of physical objects. This fund smooths out some of the complexities of the coffee market by moving assets to reduce that effect.
What is the price of a coffee futures contract?
Coffee futures contract requirements are 0.05, and each contract is worth $18.75. From 4:15 a.m. until 1:30 p.m. U.S. ET, coffee futures are traded electronically on the ICE platform. March, May, July, September, and December are the most active trading months for coffee futures and options.
Is there a coffee exchange-traded fund?
The iPath Dow Jones-UBS Coffee Subindex Total Return ETN (JO) and the iPath Pure Beta Coffee ETN are two exchange-traded funds (ETFs) offered to U.S. and other investors that directly follow the performance of the coffee market (CAFE).
What is the market for coffee?
The C Market is a global exchange where Arabica coffee is bought and sold (traded) on a daily basis. You’re entirely accurate if you believe that sounds like a financial market or stock exchange. Coffee, like sugar, wheat, cotton, oil, or gold, is a commodity, and the back-and-forth flow of selling and purchasing determines the ever-changing coffee price, or “C” price.
Who has the most coffee sales?
The United States is by far the largest coffee market in the world, with revenues exceeding $80 billion. Brazil, Japan, and Canada are in a distant second and third place, respectively.
