A guide on trading coffee as a commodity

Coffee is a widely traded agricultural commodity that is beloved by millions of people around the world. Produced primarily in tropical regions, coffee is grown on small farms, harvested by hand, and processed into various forms. From rich, dark roasts to delicate, floral blends, coffee has a wide range of flavours and styles, making it a versatile and popular choice for coffee enthusiasts.

Most of us drink it every morning, but did you know you can trade coffee in the financial markets? Trading coffee involves purchasing and selling contracts for coffee beans to profit from market volatility.

What to know before you trade coffee

Coffee trading has a rich history, notably in the United Kingdom (UK), where coffeehouses shaped trading operations.

The number of coffee traders began to increase when the commodity was brought to England during the mid-17th century. It was developed in the 18th century when coffeehouses transformed into social interaction and commerce hubs.

As it progressed, many businesses and regulating institutions were established, becoming a new starting point for international coffee traders, setting standard prices for fair coffee trade and facilitating how coffee is traded globally.

In its 2022 annual review, the International Coffee Organization (ICO) stated that people worldwide drink almost 170.3 million bags of coffee. Europe takes the lead, with about 54.2 million bags consumed.

Where is coffee commonly produced?

The growing demand to trade coffee in the UK resulted in the establishment of coffee plantations in colonies around the globe.

Coffee is now cultivated in various coffee capitals worldwide, primarily in regions near the equator with favourable climates, such as Latin America, Africa, Asia, Central America, and Oceania.

What are the types of coffee?

International coffee traders choose to trade two primary varieties of coffee: Arabica and Robusta. Coffee traders usually pick these two main types of coffee as they have unique qualities and are produced on a large scale globally.

• Arabica coffee beans are considered tastier but more expensive. The supply of coffee worldwide for this bean is about 60-70%. Brazil grows the largest supply of Arabica beans worldwide, making it a coffee capital for this type of bean.
• Frequently farmed in Vietnam, Robusta coffee beans can grow well in lower altitudes and warmer climates. It has a stronger caffeine concentration and an earthy, bitter flavour. This bean contributes about 30-40% to the global coffee supply and is usually seen at coffee fair trades.

Which countries are the major coffee importers?

The amount of coffee imported by a country shows how well its economy is performing. In 2020, the following countries proved their strong economies through the amount of coffee trading conducted:

• United States – USD 5.67 million
• Germany – USD 3.38 million
• France – USD 2.88 million
• Italy – USD 1.5 million
• Canada – USD 1.2 million

When is the best time to trade coffee?

Coffee traders hit the trade when the UK and United States (US) markets overlap. The specific time when the two markets are most active and overlap the most is usually from early morning until noon. During these hours, more than 70% of all coffee trades happen.

However, the best time for trading depends on where you live. Many people trade coffee between 8am to noon as many trading and exchanges take place in the biggest trading centres. But on the other side of the world, the best time for trading is from 5-6pm.

You can trade coffee through contracts for difference (CFDs). At markets.com, we display the current price of coffee commodities along with our charts.

You will be able to trade coffee during specified coffee trading hours. Trade coffee commodities from Monday to Friday, from 08.16am-17.29pm.

What causes shifts in coffee prices over time?

There are many factors that international and local coffee traders consider on why prices fluctuate over time. These factors interact in complex ways, impacting how coffee is traded worldwide.

Whether you are a newbie or experienced in trading coffee futures, keep these points in mind when trading coffee to make better-informed decisions:

Global economic conditions

To become a coffee commodity trader, you must know the various factors that affect the commodity.

For instance, changes in consumer spending habits and overall economic growth impact the demand for coffee.

In times of economic uncertainty, consumers might cut back on discretionary spending, affecting coffee consumption.

Government policies also determine how coffee is traded internationally. For example, the subsidies, tariffs, and regulations a government implements for import and export could affect coffee capital regions and countries that import regularly.

Climate change

Since coffee plantations are mostly located in tropical regions, weather conditions such as droughts and excessive rain can significantly impact coffee crops.

Adverse weather can lead to reduced harvests and lower supply, causing prices to rise and making it challenging for the coffee trade locally and internationally.

Crop diseases and pests

Outbreaks of diseases such as coffee rust or infestations by pests can devastate coffee crops, leading to lower production and higher prices.

Currency exchange rates

Coffee is traded globally, and international coffee traders often denote its price in United States dollars (USD). Volatility in currency exchange rates can affect the ability to conduct coffee fair trade by countries and impact the cost of production.

Also, as a coffee trader, you should know that other traders doing short trades or day trading are a big factor in price change.

Trading coffee futures through such means may influence short-term price movements through speculative buying and selling, making it difficult to hit a good trade.

How to trade coffee as a commodity

Coffee can be traded as CFDs. This type of trading not only covers commodities, but also shares, indices, forex, bonds, cryptocurrencies*, and more.

As a trader, you must first identify a reliable and reputable platform to trade coffee in CFDs.

CFD coffee trading is a popular and versatile option in the market. CFD trading is a flexible approach that allows coffee traders to speculate on the price movements without owning the asset, providing a unique set of advantages.

A reliable and reputable trading platform is essential when trading coffee in CFDs. This trading platform should offer a comprehensive range of trading options and a seamless and secure trading environment.

Choose a platform with low spreads and competitive margin rates that allow you to trade on your terms.

One of the most well-established platforms, markets.com provides world-class tools to trade coffee in the UK or internationally. It also offers educational articles and videos to guide new traders.

If you are new to trading, it pays to avoid these five trading mistakes. Knowing what not to do will prove useful when trading coffee futures or other commodities.

Make your first trade with markets.com

An award-winning and trusted CFD trading platform established in 2009, markets.com offers a wide range of financial instruments for traders of any level.

If you’re worried about losing your hard-earned money on the wrong trades, don’t worry.

You can open a demo account with us that provides $10,000 worth of virtual funds to hone your trading skills. Feel free to practise your trading until you feel more confident about your strategies.

So why wait? Join our amazing community and start to practice trading with virtual funds now.

You might also like to read: Trading oil: CFDs vs futures

When considering "Commodity CFDs" for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.