How to Trade Coffee Futures at TradeStation
Here’s a basic overview of how to get started
Coffee Futures Basics
The two most popular varieties of coffee beans are Arabica and Robusta. Arabica represents about 70% of the world’s coffee production.1 Nearly three-quarters (74%) of the world’s coffee beans come from just five countries: Brazil, Vietnam, Columbia, Indonesia, and Ethiopia.² Most countries only grow one type, but Brazil, the largest producer, grows both Arabica and Robusta. Coffee traders often focus on Brazil because changes in its production volume can have a large impact on world coffee prices.³
The top four coffee roasters purchase nearly 50% of all coffee produced.⁴ These companies market their products under numerous brands and are constantly introducing new flavors.
Although you can trade coffee futures year-round, it’s important to pay attention to several factors including overall weather patterns and industry trends. This is especially critical during harvest seasons.
Considerations for Trading Coffee Futures
The opposite effect occurs when berries are ripening, and harvesting begins. These seasons need less rainfall and higher temperatures for the best yields. Heavy rainfalls can delay harvesting, which often lowers the production volume and raises prices. In addition, certain weather patterns can increase the occurrence of coffee leaf rust, which can affect output for years to come.⁶
This means that traders in coffee futures should keep their eyes on weather conditions in major coffee-producing regions to be able to project the effect on production volumes and the ultimate impact on future prices.
According to Centre for the Promotion of Imports (CBI), a Netherlands-based organization that contributes to sustainable economic development around the globe, coffee consumption in the EU is expected⁷ to stabilize over the coming years, but it may go up in the US because of increasing consumption by younger generations.⁸
China is another large market that’s developing a taste for these magic beans. Starbucks already has more than 4,500 company-operated stores in the country. ⁹
Increasing demand in any of these markets will put more pressure on prices. Prudent traders in coffee futures will develop a knowledge for the effects of changes in supply and demand on coffee prices. For example, production volumes may drop in Brazil because of adverse weather conditions, but outputs may increase in Colombia and Vietnam.
In such scenarios, traders can consider the overall effect on coffee prices around the globe. They can use technical analysis tools to speculate about the outcome.
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Where to Trade Coffee Futures
The largest exchange for trading physical commodity futures is the New York Mercantile Exchange (NYMEX). Coffee futures are traded on the NYMEX under the product symbol KT. Each contract represents 37,500 pounds of coffee and is quoted in U.S. dollars per pound. Contracts are available for March, May, July, September, and December. (See Contract Specs for more information.¹⁰)
The Intercontinental Exchange (ICE) also offers futures contracts for coffee, with the same trading months. Prices are quoted in cents and hundredths of a cent under the symbol KC.¹¹
Knowledge of the market combined with technical support can enable traders in coffee futures to develop successful strategies. The advanced trading platform at TradeStation offers almost round-the-clock access to world markets and special margin rates for day-trading. To meet the demands of effective trading, TradeStation supports its futures-trading clients with educational resources, free market data, and customer support by experienced trade-desk specialists.
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Sources
- National Coffee Association. “What is Coffee?”
- U.S. Department of Agriculture. “Coffee: World Markets and Trade (June 2021).”
- International Coffee Organization. “Daily Coffee Prices.”
- The Balance. “How To Trade Coffee Futures.”
- Coffee Research.org. “The Optimal Coffee Environment: Best Climate Conditions for Growing Coffee Beans.”
- The Atlantic. “Coffee Rust Is Going to Ruin Your Morning.”
- CBI Ministry of Foreign Affairs. “What is the demand for coffee on the European market?”
- MTPak Coffee Limited. “Understanding Millennial Coffee Trends.”
- Statista. “Number of Starbucks stores in China from 2005 to 2020.”
- CME Group. “Coffee Futures — Contract Specs.”
- Intercontinental Exchange. “Coffee C Futures.”
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