Commodities: Coffee

Like cocoa, coffee is a soft commodity. The primary source of caffeine around the world (besting teas, sodas and energy drinks), coffee is the second most sought-after commodity in the world – behind only crude oil – and it’s worth over $100 billion worldwide.

Contract Specifications

Production        

While there are single-origin coffee varieties, global coffee futures involve two types of beans: Arabica and Robusta. Arabica beans, which are considered higher quality and the most flavorful, command a premium in the marketplace. Robusta beans, on the other hand, tend to be more bitter – but they do have a 50% higher concentration of caffeine than Arabica beans. Both types grow on small evergreen bushes that mature in about three to five years. Once the bushes blossom, the coffee berry is picked, dried and roasted.

Coffee is grown in more than 50 countries in Asia, Africa, the Caribbean, Central America and South America. Two-thirds of the world’s coffee is grown in the Americas, and 90% of production takes place in developing countries. The top three producers are Brazil, Vietnam and Colombia.

Price Drivers

Any disruption to the supply chain can cause price spikes. Major price drivers include:

• geopolitical instability
• climatic factors
• enterprise trading (the “Big Four” coffee roasting companies – Kraft, P&G, Sara Lee and Nestle – buy about 50% of the coffee produced worldwide)
• speculator effect (coffee is a highly-traded commodity)