Coffee Futures

Coffee has a long history as one of the most volatile commodities that trade on the futures markets in the United States and around the world. Each year, the weather and growing conditions in critical growing regions around the world determine the price of coffee beans. Robusta coffee that grows in areas like Vietnam trades on the futures exchange in Europe, while Arabica beans that grow in Brazil and other regions trades on the Intercontinental Exchange in the United States. While Robusta coffee represents the beans in espresso types of coffee Arabica tends to be the beverage most frequently enjoyed in the United States and many other areas around the world. There is always a price relationship between the Robusta and Arabica markets when a shortage or surplus develops in one market; it tends to affect the supply and demand for the other which leads to price movement in both variations of the java beans.

Meanwhile, while the annual coffee crop each year is a function of weather, crop diseases like leaf rust can play a role in the ultimate amount of coffee available for world consumers. When it comes to those consumers, the number of coffee drinkers around the world is growing by leaps and bounds. This year, Starbucks is opening at least 5,000 new outlets across China, and other generic coffee shops are copying the company’s move into the area by offering the beverage under other brands. Therefore, the increase in coffee consumption from a part of the world that traditionally drinks tea will be an important development when it comes to the demand side of the fundamental equation for coffee beans.

The price of coffee had been falling and making lower highs and lower lows since November 2016 until June, but over this summer the price of the ICE Arabica coffee futures contract rallied from the June lows at $1.13 per pound and reached a high of $1.4375 in August. That rally ran out of gas, and the price recently traded back below the $1.30 per pound level.

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Source: Seeking Alpha