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Commodity Play? Perk Up a Portfolio with a Global Cup of Joe

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June 24, 2016
Coffee plants: Consider perking up your portfolio with a bit of coffee, whether via stocks or futures

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.

Custom Blend: Coffee Stocks

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.

Are Coffee Futures Perking Up?

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.

Coffee futures trading in a range

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 Coffee Futures and Many More

Track futures like coffee, crude oil, gold, equity index, and many others on the TD Ameritrade thinkorswim® platform.

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