Commodity traders are almost as fond of coffee as drowsy people first thing in the morning. The “breakfast commodities” group, which includes coffee, sugar, chocolate, and orange juice, is by far the most commonly traded. Among tropical commodities, it is also the most actively traded agricultural crop.
With about half a billion cups consumed every day, the United States is the world’s greatest coffee consumer, but Canada, Mexico, and Europe are not far behind. Brazil is the world’s leading coffee grower, accounting for roughly 60% of total global coffee production. Because of this, coffee prices, which are notoriously unpredictable on a seasonal basis, are influenced greatly by Brazilian weather and, to a lesser extent, the relative value of the Brazilian currency, the real. Coffee futures prices rose by 20% in a month in 2014, then fell by 20% the following month.
Vietnam and Colombia are the number two and three coffee-producing countries, respectively. Vietnam predominantly produces robusta coffee, which contains more caffeine than the more popular arabica variety grown in Brazil, Colombia, and other important coffee-producing countries like Ethiopia.
Coffee prices are mostly influenced by global supply and demand. Coffee demand has been generally steady since 2000, albeit it can be influenced by the level of discretionary spending of consumers. Coffee availability, or expected future supply, can and does fluctuate significantly from year to year. Good weather and abundant crops normally send prices plunging, similar to how they effect orange juice costs, whereas drought or other natural calamities that threaten the world’s coffee plantations usually lead prices to surge. It’s not uncommon for coffee futures to double in price or plummet by half in a single year.
The iPath Dow Jones-UBS Coffee Subindex Total Return ETN (JO) and the iPath Pure Beta Coffee ETN are two exchange-traded funds (ETFs) offered to U.S. and other investors that directly follow the performance of the coffee market (CAFE).
What is the greatest coffee exchange-traded fund?
The iPath Dow Jones-UBS Coffee Subindex Total Return ETN, popularly known as JO, and the iPath Pure Beta Coffee ETN, also known as CAFE, are two ETFs that monitor the performance of the coffee market, according to Investopedia. The largest coffee ETF is JO, while the second largest is CAFE.
Is there a coffee futures ETF?
Coffee is unquestionably one of the most popular beverages on the planet. The rich aroma of brewed coffee has made it equally popular among the old and new generations, since it is one of the ‘breakfast commodities’ along with orange juice. Every day, more than 2.25 billion cups of coffee are consumed around the world. Over 90% of coffee is produced in developing countries, mostly in South America, whereas consumption is concentrated in developed economies. Coffee is the most valuable and commonly traded tropical agricultural product, with 80 percent of the world’s coffee produced by 25 million smallholder farmers.
Growth in the world of coffee consumption
Coffee consumption in the world has increased from 146.98 million 60 kilogram bags (the standard measure for coffee) in 2012/13 to roughly 165.35 million 60 kilogram bags in 2018/19. With approximately 500 million cups consumed every day, the United States is the world’s greatest coffee consumer. In 2019/20, the United States consumed a total of 27,430,000 60kg bags. However, when it comes to average per capita coffee consumption, the Netherlands leads the list with 8.3 kg per capita, compared to 3.5 kg per capita in the United States.
However, there are other countries where coffee is not widely consumed. China, the world’s most populous country, has one of the lowest coffee consumption rates, consuming only one cup per year on average. Coffee consumption, on the other hand, is increasing at a pace of 30% each year, compared to a global rate of 2%.
Investing in Coffee
Investing in the coffee market can be done in a variety of ways. There are a variety of products and services that are dependent on or related with coffee, just as there are with every commodity. Direct investment is exemplified by coffee plantations. Due to the concentration of coffee production in a few countries, variables such as climate change may have an impact on the investment.
Another option to consider is soft drink makers and other companies that market coffee-based products. If you don’t want to invest directly in coffee production, companies like Nestle, who offer coffee-based goods like Nescafe and Nespresso, are an excellent option.
Coffee ETFs
When it comes to coffee, there is just one type of exchange-traded fund, or ETF. These coffee ETFs are based on a coffee futures index. The iPath Dow Jones-UBS Coffee Subindex Total Return ETN is one such ETF (JO). The iPath Pure Beta Coffee ETN is another ETF that tracks the performance of the coffee futures index.
An ETN is not the same as an ETF. While equities ETFs hold the stocks in the index they monitor (for example, if the ETF tracks the S&P 500, it will own stocks from all 500 businesses), an ETN does not provide investors ownership of the assets. They solely pay out the returns of the index they’re following. As a result, ETNs resemble debt securities.
iPath Dow Jones-UBS Coffee Subindex Total Return ETN (JO)
Total Return of the iPath Dow Jones-UBS Coffee Subindex By owning coffee futures contracts in the most recent month, ETN tracks the Dow Jones Coffee Index. The fund also contains cash collateral invested in US Treasury bills, as well as the interest rate collected on those bills. The fund’s cost ratio is 0.75 percent. Because the fund’s holdings are futures contracts, there is no dividend yield. The overall value of the assets exceeds $100 million.
The iPath Pure Beta Coffee ETN (CAFE)
The Barclays Capital Coffee Pure Beta Total Return Index is tracked by the iPath Pure Beta Coffee ETN. This, like JO, holds coffee futures contracts but has a different investing strategy. This fund has a 0.75 percent cost ratio, similar as JO. The overall assets, on the other hand, are only worth $5 million.
Climate change, political upheaval, and fluctuations in supply and demand all contribute to the volatility of coffee futures.
Coffee ETF, Coffee companies, and ‘Coffee the commodity’
You won’t actually own any coffee firms if you invest in coffee ETFs because they track an index and hold coffee futures contracts, which are a commodity.
When it comes to purchasing coffee as a physical commodity, there are a number of aspects to consider. Because most coffee production is concentrated in a few countries, issues such as climate change and political upheaval can have a rapid impact on pricing. Demand is another element to consider. Because coffee is not a required basic like wheat or rice, its demand is mostly determined by disposable income and spending habits. Coffee, like other commodities, is traded in US dollars. A strong US dollar can lower coffee prices, while a weak dollar, on the other hand, can raise them.
Biggest coffee companies in the world
Starbucks, Nestle, Restaurant Brands, Dunkin’ Brands, and Coca-Cola are some of the most well-known corporations in the coffee sector or that produce coffee-based products.
Starbucks
When it comes to coffee and coffee shops, Starbucks is one of the most well-known names. With more than 30,000 stores in 70 countries, they are the world’s largest coffee shop business. Starbucks, despite being essentially a coffee store, offers a wide range of products, including teas, hot chocolates, smoothies, iced drinks, and a variety of food items. Starbucks has a $115 billion market value. They increased their net revenue from $14.9 billion in 2013 to $26.51 billion in 2019. With $16.65 billion, the United States brought in the most money.
Dunkin’
Dunkin’ Donuts is the world’s second-largest coffee company. The company is also one of the largest donut shops in the world, with roughly 12,900 locations in 42 countries. Donuts, bagels, coffee, and munchkins donut holes are among their offerings. Inspire Brands purchased the company in 2020 after it was initially purchased by Baskin Robin corporate company Allied Domecq. In 2019, Dunkin’ Brands earned revenue of around 1.37 billion dollars, up from 811 million dollars in 2015.
Tim Hortons
Tim Hortons is the world’s third-largest coffee shop. When it comes to coffee, the Canadian international fast food restaurant company with over 4,846 locations in 14 countries is a household name. Restaurant Brands International bought the company, which also operates Burger King and Popeyes chicken restaurants. Their income in 2019 was estimated to be around $3.34 billion US dollars.
Why do we like Starbucks?
Starbucks is one of our favorite companies for a variety of reasons, including the fact that they are one of the world’s largest coffee companies. Starbucks is widely regarded as being overpriced. In some ways, they are correct. A cup of coffee for $5 is a touch excessive, but is that really what we’re paying for?
Starbucks has been the go-to spot for meets, dates, and casual meetings over the years. Starbucks has evolved from a coffee shop to a place where you may spend time with your friends, family, or even coworkers, given that many business meetings are held there. Also, as the number of remote workers grows, more individuals are turning to Starbucks as a place to work.
So, the explanation is that they are not paying $5 for a cup of coffee; rather, they are paying for the experience and ambiance.
Here are a few more indicators that Starbucks is structured to withstand adversity.
Brand Loyalty
Starbucks is one of those companies that knows how to treat their consumers well and keep them coming back. Customers associate Starbucks with coffee because of the additional food options and the ambiance of the stores. Aside from that, they have a really excellent customer loyalty program. It allows them to place their orders ahead of time and delivers free hot coffee or tea refills in-store. You’ll also earn free snacks and food if you reach the top of the loyalty tier.
Prior Experience
When we look at how Starbucks dealt with prior recessions, we can see that they concentrated on regaining their customers’ trust. They began by conducting a poll that included questions regarding the customer experience. As a result of the overwhelming response, they adopted several of the customer recommendations. This helped them get through a difficult period. Even though this does not guarantee that companies would perform in future recessions in the same manner, their focus on customer satisfaction will go a long way toward helping them weather the storm.
Diversification
They began selling their coffee in supermarkets to capitalize on the existing brand loyalty and reputation. They’ve also worked with a number of delivery services and are extending its drive-thru and smartphone ordering options. Customers will be able to interact with the brand in a variety of ways thanks to all of these opportunities.
One of our top 20 stocks to own for the next 20 years is Starbucks. The other 19 can be found in The 8 Step Beginner’s Guide to Value Investing, our best-selling book.
How can I make a coffee investment?
Coffee ETFs, coffee stock, and coffee futures are all options for investing in coffee. However, because to growing and manufacturing variables, the price of your daily bean can be unexpected. Compare your investment possibilities across trading platforms and other tangible goods before purchasing this commodity.
How is coffee bought and sold?
Before reaching the consumer, the coffee industry has a commodities chain that includes producers, middleman exporters, importers, roasters, and retailers. Coffee “coyotes,” often known as middlemen exporters, buy coffee directly from small farmers. Large coffee estates and plantations frequently export their harvests or work directly with a global coffee processing or distribution corporation. Large growers can sell at the New York Coffee Exchange’s predetermined prices under either system.
Importers purchase green coffee from exporters or major plantation owners. Importers keep big container loads in stock, which they progressively sell through a series of modest purchases. They have the financial resources to source high-quality coffee from around the world, something average roasters lack. Because roasters rely heavily on imports, importers have significant influence over the sorts of coffee sold to consumers.
There are around 1,200 roasters in the United States.
In the commodity chain, roasters have the largest profit margin. Pre-packaged coffee is typically sold by large roasters to large merchants like Maxwell House, Folgers, and Millstone.
Coffee is sold in cafes and specialty businesses that sell coffee (about 30% of which are chains), as well as supermarkets and traditional retail chains.
Supermarkets and traditional retail chains account for over 60% of the market and are the key distribution channels for both specialty and non-specialty coffee.
Coffee is drunk in excess of 12 billion pounds annually around the world, with over 130 million coffee users in the United States alone.
Coffee is a traded commodity that is purchased and sold by investors and price speculators. The New York Board of Trade (NYBOT) trades coffee Arabica futures contracts under the ticker symbol KC, with contract deliveries taking place every year in March, May, July, September, and December. Coffee Robusta futures are traded on the ICE London (Liffe) exchange under the ticker symbol RC, with contract deliveries taking place in January, March, May, July, September, and November of each year.
Is it possible to buy coffee futures?
Coffee futures are traded on the NYSE Euronext (Euronext), the New York Mercantile Exchange (NYMEX), and the Tokyo Grain Exchange (TGE) (TGE).
Prices for Euronext Robusta Coffee (No. 409) futures are stated in USD per metric ton and traded in 10-tonne lots.
Coffee futures are traded on the New York Mercantile Exchange in quantities of 37500 pounds (17 metric tons), with contract prices specified in dollars per pound.
TGE Arabica Coffee futures are traded in lots of 50 bags and are priced in yen per bag (3450 kilograms).
TGE Robusta Coffee futures are traded in 5000-kilogram lots with yen per kilogram contract prices.
What exactly are ETFs and ETNs?
ETNs are structured instruments that are issued as senior debt notes, whereas ETFs are exchange-traded funds that have a position in an underlying commodity. In that they are unsecured, ETNs are similar to bonds. ETFs allow investors to invest in a fund that owns the assets they are tracking, such as stocks, bonds, or gold.
The ETNs are backed by Barclays Bank PLC, a 300-year-old financial institution with hundreds of millions of dollars in assets and a strong credit rating from Standard & Poor’s. Even with this level of trustworthiness, the investments are not without risk. Regardless of its reputation, Barclays will never be as safe as a central bank, as we saw with the collapse of large banks like Lehman Brothers and Bear Stearns during the last financial crisis. Even stricter regulations requiring higher safety capital do not totally protect banks from failure.
Is there an ETF for cocoa?
This is a list of all Cocoa ETFs currently labeled by ETF Database and traded in the United States. The table below shows fund flow data for all Cocoa ETFs available in the United States. For a given time period, total fund flow equals the capital input into an ETF minus the capital outflow from the ETF.
Is there an ETF for sugar?
Overview of the Sugar ETF Sugar ETFs manages $48.98 million in assets under management through two ETFs that are traded on US exchanges. 1.17 percent is the average expense ratio. ETFs that invest in sugar are available in the following asset classes: Commodities.