Coffee may wake you up in the morning, and coffee can perk up a portfolio, too. Learn how investors can gain exposure to coffee and diversify a portfolio.
Coffee may wake you up in the morning, and coffee could perk up a portfolio, too.
Coffee is one of the most widely grown crops in the world, and consumption is rising. According to the International Coffee Organization (ICO), the average annual global consumption growth rate rose 2.5% since 2011. In the 2014 calendar year, people consumed 150.2 million 60-kilogram bags of coffee, the ICO said. Each year java junkies drink about 500 billion cups of Joe, according to the National Coffee Association.
There are more than 50 countries that produce coffee, but far and away the biggest coffee producer is Brazil. In the 2015 crop year, the country produced 43.2 million of the total global production of 144.7 million 60-kilogram bags. Vietnam is second at 27.5 million bags. Colombia comes in third at 13.5 million bags.
The bulk of coffee production involves the Arabica bean, which prefers high altitudes and rich soil, while Robusta varieties enjoy higher temperatures and can thrive on lower ground, the NCA said.
Europeans are the biggest coffee drinkers globally; the European Union consumed 42.2 million bags of coffee beans in 2014, the ICO said. The U.S. used 23.7 million bags, and Brazil consumed about half of its production at 20.2 million bags.
Investors can gain exposure to coffee in the stock or futures markets. When it comes to stocks, think of businesses that are in the business of selling coffee.
Other more roundabout ways to invest in coffee involve firms where coffee makes up a fair share of business. Think of fast food companies that also sell coffee and grocery store brands.
Investors can track coffee futures in the thinkorswim® platform with the symbol /KC. Coffee futures prices have undulated in 2016 (see figure 1), rising partially because of the rebound in commodities. Separately, prices spiked in March because of worries related to supplies of the Robusta crop. Drought in Vietnam, where the majority of the world’s Robusta production is grown, helped lift prices of that variety, which in turn supported Arabica prices.
FIGURE 1: COFFEE FUTURES (/KC) TRADING IN A RANGE.
Coffee futures have traded in a range for the past year. Weather patterns in certain geographies can influence coffee futures in the short term, as seen in the spikes within the year-long trading range. Chart source: the thinkorswim® platform by TD Ameritrade. Data source: ICE. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
Although prices came off the March highs, coffee prices are rising again. There were also concerns about how Colombia’s production may fare, as “there are increasing concerns that dryness caused by El Niño could reduce output in the second half of the year,” the ICO wrote in a blog post.
Coffee drinkers are famous for their loyalty (or dependency?) when it comes to the brown brew. You may want to consider exposure to the delicious beverage if you’re looking to diversify your portfolio.
Track futures like coffee, crude oil, gold, equity index, and many others on the TD Ameritrade thinkorswim® platform.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
Futures and futures options trading is speculative, and is not suitable for all investors. Please read the Risk Disclosure for Futures and Options prior to trading futures products.
Futures accounts are not protected by the Securities Investor Protection Corporation (SIPC).
Futures and futures options trading services provided by TD Ameritrade Futures & Forex LLC. Trading privileges subject to review and approval. Not all clients will qualify.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2021 Charles Schwab & Co. Inc. All rights reserved.