The opportunities and pitfalls of trading coffee futures

Commodity futures markets are diverse, filled with myriad opportunities and possibilities. From silver to soy, there really is 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 Specifications

Aside from crude oil, beef, pork, corn, and soybeans, coffee is one of the world’s most coveted staples. In fact, by 2020/2021, people consumed almost 10 billion kilograms of coffee worldwide.

Robust coffee consumption requires an unconstrained supply chain and mass production to meet today’s strong demand. Consequently, coffee futures offer both speculators and hedgers the opportunity to secure market share.

The main coffee futures contract in the world is Coffee C which is listed on the International Exchange (ICE). ICE’s Coffee C is considered the global benchmark for the pricing of Arabica coffee, which represents 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. The main importers of Arabica are the United States ($ 5.7 billion), Germany ($ 3.5 billion) and France ($ 2.9 billion).

Here are the contract specifications for ICE Coffee C Futures:

Contract name Coffee Futures “C”
Symbol KC
Quantity 37,500
Quote Cents and 1/100 of a penny to two decimal places
Contract months March, May, July, September, December
Minimum tick 5/100 cents per pound
Tick ​​value US $ 18.75 per contract
Settlement Physical delivery
Quality Beans are classified as “premium” or “discounted” compared to an established “basic” grade.

Drivers of the coffee futures market

As with all commodities, the supply and demand paradigm plays a very important role in determining coffee prices. On the producer’s side, weather patterns, geopolitical concerns, and government tax and regulation are all capable of derailing supply. Conversely, business cycles and disposable income can affect demand.

In addition to traditional supply and demand concerns, a unique collection of fundamentals is critically important to this market. These two factors are also key drivers of the coffee futures market:

  • Innovation: Coffee is one of the most popular beverages in the world and new coffee products are always popping up online. For example, ready-to-drink (RTD) coffees have gained popularity in recent years. In fact, the IDT market has enjoyed a strong market share and has been valued at US $ 4,833 million by 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 US dollar has a huge influence on the price of spot coffee and its derivatives. Typically, as the US dollar lags, the price of coffee rises along with inflation and currency devaluation. This was the case during the summer of 2021, when July coffee prices soared as the US dollar remained depressed.

When trading ICE Coffee C, it is important to be aware of current market fundamentals. This means monitoring industry reports, understanding supply and demand developments, and keeping up with macro consumer trends. In addition, it helps to keep abreast of trends in the USD and changes in central banking. monetary policy.

Ready to trade coffee C futures?

Before launching into any market, it helps to better understand your approach to futures markets. For ICE Coffee C, volatility can be rapid and prices dynamic, so understanding how coffee futures can fit into your overall strategies is critical.

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