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What Moves Coffee Futures Price?

coffee price study

Widespread consumer popularity ensures long-term profitability for would-be coffee commodity investors as the coffee futures price will go up in the long term.

Worldwide, the collective daily consumer consumption of this liquid commodity exceeds 2 billion cups.

Inhabitants of industrialized nations consume over nine-tenths of worldwide supplies. Nonetheless, developing countries produce the vast majority of the sustaining substance.

Daily Coffee Prices (ICE)

Coffee Consumption Characteristics

Statistics show that over 150 million American adults consume coffee daily. In 2000 alone, cumulative  consumption within the US equated to over 22 gallons for every individual within our nation‘s borders. In 2008, coffee sales claimed the Number One spot for convenience store patron preference.

Over three quarters of these hot beverage aficionados obtained their fix from in-store instant dispensers. Clearly, coffee commodity is in  high demand. Corresponding high profit margins make for brisk business on futures and commodity exchange markets.

Coffee Production is Big Business

About 25 million small producers around the world rely upon this crop for their livelihood. For instance, Brazil exports nearly one-third of all the coffee consumed across the globe on an annual basis. At the same time, the Brazilian industry employs more than 5 million workers who cultivate and harvest over 3 billion bean-producing plants every year.

Other major  exporters include Vietnam, Colombia, Indonesia, Ethiopia, India, Mexico, Guatemala, Peru, and Honduras.

A unique agricultural aspect of coffee is that it is not amenable to automated cultivation methods. Unlike cattle, corn, or sugar cane, it requires constant manual manipulation, intervention, and supervision by human hands.

coffee point and figure chart

Coffee Commodity Futures for Financial Security

The main trading post on this cash crop’s futures market is the New York Board of Trade (“NYBT”).

NYBT trades entail the sale or purchase of tangible financial assets. Standardized written contracts represent ownership rights to future trades of specifically sized coffee commodity trade units at previously agreed-upon prices.

Foundations of Coffee Futures Price Fluctuations

The International Coffee Organization (“ICO”) is an internationally renowned industry analyst firm that compiles and maintains historical coffee commodity price data. ICO statistics indicate that coffee futures  price steadily exceeded $1 USD per pound through the end of the 1980s.

A decade later, however, values declined to an all-time low of 41.17 cents/pound. This drop continued from 2001 to 2004. A combination of Cold War-induced economic pressures and dismantlement of the International Coffee Agreement from 1962 to 1989 were cited as contributory causes.

The lifting of US embargoes prompted a Vietnamese debut onto the international coffee scene in 1994. Concurrent reductions in supply pressures resulted in the increased awarding of coffee futures contract to more efficient Vietnam vendors.

Individual ingredient cost declines stimulated per-cup retail price reduction. This happens just as specialty coffee popularity soared. Finally, increased soft drink consumption among consumers during the early 2000s further contributed to overall coffee futures price declines.

Coffee futures prices have risen sharply since 2005, however. Per the ICO, these initial increases were likely due to higher consumption throughout China and Russia, in addition to a crop depletion of 10 to 20 percent lower than in prior years.

Endemic fear of failed harvests in coffee-exporting countries is the factor cited as being responsible for an ICO price indicator increase that reached 172 percent by December of 2010. With the volatility in the coffee futures price, there are excellent opportunities trading it.

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