Ways to invest in Coffee

How Can I Invest in Coffee?

Coffee traders have several ways to invest in the commodity: Coffee Trading Methods Compared

Coffee futures coffee Options  Coffee ETF’s ( ETN’s) Coffee Shares Coffee CFD’s
Difficulty Level Hard hard easy easy average
Storage Costs No No No No No
Security Costs No No No No No
Expiration Dates Yes yes No No No
Management Costs No No yes No No
Leverage ? Yes yes No yes yes
Regulated Exchange Yes yes No yes yes

Complexity Rating (1 = easy, 5 = hard)

Coffee Futures.

The New York Mercantile Exchange (NYMEX), which is part of the Chicago Mercantile Exchange (CME), and the Intercontinental Exchange (ICE) offer the Coffee C futures contract, which is the world benchmark for Arabica coffee.

The Coffee C contract settles into 37,500 pounds of Arabica beans. The CME contract trades globally on the CME Globex electronic trading platform and has expiration months of March, May, July, September and December.

Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions. At expiration, the contracts are financially settled on the NYMEX but physically settled on the ICE.

Investing in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.

Coffee Options on Futures.

The ICE offers an options contract on the Coffee C futures contract.

Options are also a derivative instrument that employ leverage to invest in commodities. As with futures, options have an expiration date. However, options also have a strike price, which is the price above which the option finishes in the money.

Options buyers pay a price known as a premium to purchase contracts. An options bet succeeds only if the price of Coffee C futures rises above the strike price by an amount greater than the premium paid for the contract. Therefore, options traders must be right about the size and timing of the move in Coffee C futures to profit from their trades.

Coffee ETFs

These financial instruments trade as shares on exchanges in the same way that stocks do. An ETN is similar to an ETF except that instead of holding the assets in a fund, it pays traders returns on the portfolio of assets. In this sense, it is more like a bond. There are two popular ETNs that invest in coffee futures:

Top 2 Coffee ETFs are iPath Dow Jones – UBS Coffee ETN & iPath Pure Beta Coffee ETN

Shares of Coffee Companies.

There are few pure-play public companies engaged in the production and sale of coffee. Most coffee producers are small and privately-owned. Investors could purchase shares of one of India’s largest coffee producer Tata Coffee Ltd (TCO.IN). 

Coffee CFDs.

One way to invest in coffee is through the use of a contract for difference (CFD) derivative instrument. CFDs allow traders to speculate on the price of coffee. The value of a CFD is the difference between the price of the shares at the time of purchase and the current price.

Many regulated brokers worldwide offer CFDs on coffee. Customers deposit funds with the broker, which serve as margin. The advantage of CFDs is that traders can have exposure to coffee prices without having to purchase shares, ETFs, futures or options.