Why Coffee Is A Valuable Commodity And How To Invest

Why Coffee Is A Valuable Commodity And How To Invest

Coffee is the most popular beverage in the world, with around two billion cups of it globally every single day. And there is not anticipated to be any let-up in demand either. The market is expected to continue growing over the next five years and be worth $166.4 billion in 2029.

We’ve taken a look at what makes coffee so popular and explain how you can invest in a commodity that has come to be known as “black gold”.

Economic and cultural significance

The coffee industry contributes over £17 billion to the UK economy annually, so it is a huge business. And as there is global demand, it likely plays a significant role for most other developed countries too.

Many countries cannot produce it themselves as they do not have the appropriate climate. It is therefore a significant source of income for countries that can grow it, often contributing a decent amount to their GDP.

Top producers

  1. Brazil
  2. Vietnam
  3. Colombia
  4. Indonesia
  5. Honduras

Brazil is far and away the biggest producer of coffee, accounting for around 40% of the global supply. And with Colombia third and Peru seventh, it’s unsurprising that South America is the dominant region in the industry.

Investing in coffee

With such a big market, there are plenty of opportunities to invest and profit. Ways to invest in coffee include:

  • Futures: This is the practice of buying and selling contracts that price coffee several months in advance. They are settled by the physical delivery of the commodity at a specified time.
  • Contracts for difference (CFDs): If you plan on getting into commodity trading, CFDs are a great tool. You can speculate on price movements without taking ownership of the physical commodity. 
  • Exchange-traded funds: These track indices that hold coffee futures, granting you exposure to the market without having to worry about being tied to the physical product.
  • Stocks: Invest in companies that either produce coffee or sell it on the retail side, like Starbucks and Costa Coffee.

Risks

Just like with any investment, there are risks when it comes to investing in coffee. The production of coffee is heavily influenced by weather conditions, which have become increasingly erratic due to climate change. This can lead to fluctuations in the global supply.

Currency exchange rates also play a role. For example, if the local currency of a producer decreases in value, they will not be able to afford as much chemical fertiliser because it is made from oil, which is globally traded in US dollars. This then has a knock-on impact on the global supply.

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