The Opportunities and Pitfalls of Trading Coffee Futures

The commodity futures markets are diverse, filled with countless opportunities and possibilities. From silver to soybeans, there is truly a product for everyone. One of the lesser-known offerings is coffee futures. Let’s take a look at this exciting market and what it can do for your bottom line.

ICE Coffee C Futures: Background and Specs

Aside from crude oil, beef, pork, corn, and soybeans, coffee is one of the most sought-after commodities in the world. In fact, for 2020/2021, people consumed nearly 10 billion kilograms of coffee globally. 

Coffee’s robust consumption requires an unfettered supply chain and massive production to satisfy strong ongoing demand. Accordingly, coffee futures offer both speculators and hedgers an opportunity to secure market share. 

The premier coffee futures contract in the world is Coffee C listed on International Exchange (ICE). ICE’s Coffee C is considered to be the global benchmark for the pricing of Arabica coffee, which accounts for more than 60 percent of aggregate consumption. Although Arabica coffee beans originated and are grown in Ethiopia, Brazil is now the world’s leading producer and exporter. Leading importers of Arabica are the United States ($5.7 billion), Germany ($3.5 billion), and France ($2.9 billion). 

Here are the contract specs for ICE Coffee C futures:

Coffee Futures Market Drivers

As with all commodities, the supply-demand paradigm plays a huge role in determining coffee prices. On the producer side, weather patterns, geopolitical concerns, and government taxation and regulation are all capable of derailing supply. Conversely, economic cycles and disposable income can both impact demand.

In addition to traditional supply-demand concerns, a unique collection of underpinnings is exceedingly important for this market. These two factors are also key coffee futures market drivers:

• Innovation: Coffee is one of the world’s most popular beverages, and there are always new coffee products coming online. For instance, ready-to-drink (RTD) coffees have grown in popularity over the past several years. In fact, the RTD market has boasted robust market share and was valued at US$4,833 million for 2020. The RTD market is expected to continue its upward trajectory and expand the need for coffee production.
• USD strength: As with other commodities, the relative strength of the USD has tremendous sway in the pricing of spot coffee and derivatives. Typically, as the USD lags, the price of coffee increases in concert with inflation and currency devaluation. This was the case during the summer of 2021, when July coffee prices spiked as the USD remained depressed. 

When trading ICE Coffee C, it’s important to stay abreast of current market fundamentals. This means monitoring industry reports, understanding evolving supply and demand, and keeping up with macro consumer trends. Also, it helps to be aware of trends in the USD and shifts in central banking monetary policy. 

Are You Ready to Trade Coffee C Futures?

Before jumping into any market, it helps to increase your understanding of your approach to the futures markets. For ICE Coffee C, volatility can be swift and prices dynamic, so it’s critical to understand how coffee futures can fit into your overall strategies.

To learn more about how your personality can determine the best trading plan, check out our free on-demand course “Trading Psychology.” You’ll learn how to develop self-confidence and identify self-defeating patterns, and you’ll gain other insights that will help you master your own mind.

Source: https://www.danielstrading.com/2021/10/12/the-opportunities-and-pitfalls-of-trading-coffee-futures