5 Reasons You Might Invest in Coffee

5 Reasons You Might Invest in Coffee

There are several compelling reasons traders might consider investing in coffee:

  1. Bet on Supply Scarcity
  2. Bet on Global Growth
  3. Bet on Improving Health Story
  4. The Starbucks Effect
  5. Portfolio Diversification


Can You Hedge on the Supply Scarcity of Coffee?

Coffee has its source of supply concentrated heavily in a few countries. Since coffee growing requires the right climate and financial resources, this concentration is unlikely to change anytime soon. Conditions such as climate change and political upheaval have the serious potential to disrupt the supply of the crop and send prices higher.

Bet on Global Growth of Coffee consumption

As a discretionary item, coffee benefits from strong global economic growth. Investors optimistic about growth in emerging economies in Asia, Latin America and Africa may want to invest in coffee. As these countries accumulate wealth, their consumption of coffee is likely to increase. Similarly, investing in coffee is a way to bet on growing discretionary income in Western economies.

Bet on the Increasing Health Benefits of Coffee

Medical evidence paints an increasingly favorable picture of the health benefits of consuming coffee. If more medical evidence emerges about these benefits, then consumer behavior may shift toward greater consumption.

The Starbucks Effect on Coffee and Investments

Consumers increasingly see coffee shops as fun and productive places to congregate. Business professionals, students and civic groups perform work and hold meetings in them. As coffee shops proliferate in popularity, coffee consumption should benefit.

Diversify Your Investment Portfolio

Most traders have the vast majority of their assets in stocks and bonds. Investing in coffee is one way to diversify a portfolio.

Coffee trades in enormous volume, at large quantities. The standard contract is of 18¾ tons, and sometimes tens of thousands of contracts a day are sold. Which means that penny movements can create and destroy fortunes.

Few traders do this in practice. Instead, they buy and sell contingent on what they believe coffee’s price will be down the road (thus “futures”). Futures prices often bear only a passing resemblance to live prices. Instead, futures prices are a collective estimate of how much and in what direction coffee prices will move in the short-term.

 

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