How To Trade Coffee Futures

How To Trade Coffee Futures – According to the World Coffee Organization, coffee is the second most popular source of foreign exchange in developing countries, behind crude oil.

When we talk about the history of coffee, according to the available information, we must say that the first coffee shop was opened in 1457 in Constantinople (state of modern Turkey). Until 1989, the coffee market was heavily regulated by the world trade system through a series of international trade agreements to control supply and demand and maintain inflation. Over time, these agreements between countries were completely abandoned and the price of coffee began to be determined by the free market from 1990. As a result, the price of coffee lost more than 75 percent in the next 5 years. These changes In 1995, they dropped to $0.77 per pound, and in 1989, at their peak, they paid $1.34 per pound of coffee.

How To Trade Coffee Futures

Coffee futures fall into the category of soft commodities, which includes all types of primary commodities except for mineral products, metals and oil, and their prices are expected to fluctuate significantly. According to the size of these futures contracts, traders should be very careful in their trading. In this article, we outline seven key things you should know before trading coffee futures.

Coffee Continues To Roar (nysearca:jo)

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If you decide to trade the future coffee business, it is important to know that only 2 out of 60 coffee trees are grown at an industrial level. These are Robusta and Arabica. Coffee futures are traded on several exchanges. For example, Robusta is traded primarily on the Singapore Commodity Exchange (SICOM) and Arabica on the Brazilian Commodity and Futures Exchange (BM&F), both of which are traded on the Tokyo Grain Exchange (TGE).

Coffee futures are traded in the US on the Intercontinental Exchange (ICE), formerly known as the New York Board of Trade (NYBOT).

Even crude oil brands, which are divided into heavy oil and light oil (called “sweet oil”), coffee is classified by brand according to its bean characteristics. Arabica beans have a rich flavor with bright acidity, while Robusta beans are stronger and more regular with a bitter taste. However, Robusta contains twice as much caffeine as Arabica.

Coffee Futures Contract Prices, Charts & News

Arabica is mainly grown in warm climates and requires fertile soil, shade and sunlight. It is true that over 70% of the world’s coffee is Arabica. This brand is highly susceptible to agricultural pests and cold weather and grows at an altitude of 600 to 2,000 meters. It is generally sold in coffee shops and specialty supermarkets.

As of today, Intercontinental Exchange (ICE) coffee futures are very popular among market participants. The price of this futures contract is set in cents. The minimum change (ticket) per pound of coffee is 0.05 US cents per 1 pound (0.4536 kg), which is $18.75 per contract. ICE’s margin requirements may vary for this type of contract and include $2,970 for the futures contract and $2,700 as the minimum balance in the trading account. There are five contract months in total: March (H), May (K), July (N), September (U) and December (D). Please note the limited trading hours as this item is not sold 24 hours a day.

Robusta coffee futures (ticker: RC), also known as No. 409, are traded on the Euronext exchange. The price of this futures contract is set in USD for one metric ton of coffee and the volume is 10 tons. Robusta is most effectively traded on the London International Financial Futures and Options Exchange (LIFFE), a subsidiary of the NYSE, where coffee futures contracts are priced in GBP. Other coffee beans traded on the Tokyo Grain Exchange (TGE) are traded in JPY, but the volume of sales in the Japanese market is small.

Coffee production and its cycles are very different from traditional grain cultures. For example, it often happens that there is a large production of coffee in one year and a small production in the next year. However, coffee production has increased over time and has occasionally declined. The highest coffee production was recorded in 2012-2013 at 145.1 million bags.

A Chance For A Higher High In Coffee Fails

Although coffee production started in Africa, according to the information released by the International Coffee Organization, this continent has shown a decrease in production in the last 50 years. According to available data, the share of African coffee production has dropped from 25 percent to 14 percent. In 2012-2013, coffee production in Africa was 16.7 million bags.

In African countries like Kenya and Cameroon (and others but not Ethiopia), coffee production is steadily declining.

The production of coffee in Asia is constantly growing, due to the actions of Vietnam, it is constantly increasing its market share. Vietnam followed by India and Indonesia.

Over 90% of coffee trade is in green or unroasted beans. The current factor plays an important role in coffee production and affects the future price. Although there is no high level of coffee production at any time of the year, during the summer the consumption decreases by an average of 12%. On the other hand, while the imports of coffee beans are decreasing in the spring and summer months, their demand is increasing in the autumn and is always high in the winter.

The Price Of Distortion: Speculation And Alternative Trade Models In Coffee

The chart above shows an overview of 15-year and 5-year current coffee trends. Based on supply and demand, coffee prices tend to rise from August to September, then fall before continuing to rise in October. Usually in June and July, the price of coffee increases and is high, mainly due to the weather in Brazil and the winter months in the southern hemisphere. The Brazilian coffee harvest begins in May and lasts for several weeks.

Low coffee prices create problems for coffee producers. When the price falls below the cost of production, the economic incentive to produce disappears. Coffee production ceases during this period due to high costs. As a result, the coffee trees produce a small amount of beans, less labor is used for treatment, and the use of fertilizers is lower, which affects the quality of the coffee.

This affects the Arabica coffee beans that are grown at high altitude, so the whole cycle of their growth and treatment is very expensive.

The largest Arabica coffee beans are found in the small Brazilian state of Minas Gerais. It produces 25-30 million bags of coffee every year. The amount of coffee produced in the state of Minas Gerais is higher than in other countries such as Colombia or Indonesia. The weather in this region can often have a major impact on the coffee industry and can have a significant impact on farmers’ decisions about growing coffee. Local agricultural companies store dried and processed grains in warehouses and sell them when market conditions are favorable, they say.

Coffee And Sugar Move In Opposite Directions (nysearca:jo)

In general, Brazil experiences a cold winter every 5 years on average, which severely affects the coffee production process. It is very important for day traders in the coffee market to monitor weather reports and forecasts to prepare for any news that may increase the volatility of coffee prices in the future. Throughout the history of coffee production, the price of coffee has fluctuated greatly. As happened with Vietnam in the late 1990s, it depends on supply disruptions, such as from the cold climate in the highlands, and new exporters emerging in the market who are able to take some share due to low prices. – Early 2000s. Volatility in the Coffee C futures contract (ticker: KC) is high, making the contract popular with traders over time.

There are several reports published by various independent organizations. They monitor supply and demand and prepare forecasts for such commodities. The US Department of Agriculture (USDA) regularly issues special reports on coffee, which are economically significant and will affect future coffee prices in the short term.

The US Department of Agriculture’s World Markets and Trade Report focuses on trade in Arabica and Robusta coffee and provides a production assessment.

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