Whether you are a coffee drinker or not…
…Coffee is a commodity, which enjoys steady demand in any market, making it attractive for traders. In addition to currencies, stocks, and indices, a stable commodity is also an important part of a balanced portfolio.
Coffee enjoys continuously high demand, with some fluctuations in preferences for different varieties based on the ratio of quality vs. cost. As consumers turn toward “greener” and more “sustainable” products, demand for ethically produced coffee is showing growth despite the premium price tag in this segment. All these factors combined make coffee difficult to predict, but create great opportunities for profit within the market. Thus, with the right strategy and doing some research, both beginner and experienced traders can achieve attractive profits by trading coffee, as one of the many ingredients of a successful strategy for a diversified portfolio.
About the market
The main suppliers on the market come from the traditional coffee-growing countries of Brazil, Colombia, Indonesia, and Vietnam, whereas Brazil is the leader in this sector, producing twice as much as the 2nd ranking producer, Vietnam. The latter has the advantage of producing a cheaper product, thus maintaining a competitive edge on this peculiar market.
How coffee commodity prices are formed
The two most popular coffee varieties are Arabica and Robusta, where Arabica is considered to be of higher quality and traded at a higher price. Robusta is easier to grow and therefore cheaper, but its taste is less desirable than that of Arabica. The rise of the “fair trade” model has ensured guaranteed minimum prices to producers, which influences competition and prevailing pricing on the market. Another factor is ongoing scientific research indicating that coffee could be used for medical purposes in case of a positive outcome, thus supporting demand and driving prices up. Coffee trade is also seasonal and subject to weather conditions and these factors also influence the commodity market.