Coffee trading (COFFEE): Live Price Chart

Coffee has long been one of the most traded soft commodities on the planet. The marketplace is said to have a value of over $100 billion, which is why it’s such an intriguing place for retail traders to start when trading the price of commodities.

When you trade coffee, it’s important to remember this is a ‘soft’ agricultural commodity rather than a hard commodity that’s mined. Soft commodities like coffee have a distinct place in the financial markets, with coffee futures the most commonly traded on the Intercontinental Exchange (ICE). Coffee futures state a date and price at which you are obliged to buy the underlying commodity. Meanwhile, coffee options contracts give you the choice to buy or sell the underlying commodity if it hits a set price within the timeframe of the contract.

Coffee is derived from a plant grown in over 50 nations worldwide – all of which benefit from subtropical and tropical climates. Brazil is streets ahead as the world’s leading coffee producer, equating to almost two-fifths (39%) of global supply, followed by Vietnam, Colombia, Indonesia and Ethiopia. There are two primary coffee variants grown worldwide – Robusta and Arabica. Robusta is known for its bitter taste and high caffeine content. Arabica is said to have a more rounded flavour and a more ‘premium’ finish.

There are multiple factors that make coffee such a volatile commodity to trade. We’ll explore those briefly once we’ve assessed the history of the coffee price through the years. It reached all-time highs of $3.39 per lb in April 1977 when Brazil was hit by one of its harshest frosts on record, severely affecting its latest crop yield. Just two years prior to this frost, the price of coffee was a mere $0.45 per lb. In 1989, the price of coffee plunged following the collapse of the International Coffee Agreements (ICA), which had provided a regulatory framework for coffee production since 1963. By 1992, coffee was trading at a price of just $0.50 per lb once again. It’s been on something of an upward trajectory since, trading within a range of $2-$2.60 per lb so far in 2022.

There are several influencers of the price of coffee, all of which can affect both its supply and demand:

1. Climate conditions

Coffee production is heavily influenced by weather conditions. If the climate has been favourable, the price of coffee will usually remain steady or even fall. If the climate has been inadequate, resulting in a poor yield, the price will often rise.

2. The so-called ‘Big Four’ producers

The price of coffee is largely driven by the ‘Big Four’ firms that produce half of the global supply – Kraft (KHC), Procter & Gamble (PG), Nestle (NESN) and Sara Lee (SLE).

3. Coffee leaf rust

Coffee crops can be affected by a leaf disease known as leaf rust. Any year affected by coffee leaf rust invariably affects supply.

4. Geopolitics

Geopolitical events can have an impact on coffee prices too, especially when so-called ‘trade wars’ develop between nations or continents.

5. Strength of US dollar

With the price of coffee sold in USD per lb, the strength of the US dollar can also positively and negatively affect market values.

Soft commodities like coffee are ripe for short-term trading, known as scalping. With the price volatility in the coffee market much higher than many other commodities markets, it lends itself better to profiting from small fluctuations in the market. Some people who trade coffee will trade the asset within a ‘range’ known as a support and resistance range. Coffee traders will buy the asset when it’s approaching its support point, when buyers outweigh sellers, and sell the asset at its resistance point, when the number of sellers outweighs the active buyers.

Aside from coffee futures and options contracts, it’s also possible to invest in coffee-themed equities like the ‘Big Four’ we mentioned earlier. Coffee-producing firms can see their share prices rise or fall based on the size of their latest yields.