Investing in coffee can have very interesting prospects. Today, coffee is the most consumed beverage in the world and has a turnover of 90,000 million dollars per year.
Before investing in this market, however, it is worth analysing the sector in depth, knowing the real time price of coffee and studying a specific strategy.
There are no drinks in the world more popular than coffee, the drink is born from the infusion of coffee plant seeds that are roasted after being harvested. After oil, and the metal, coffee is the most traded raw material in the world.
That’s why coffee trading is an exciting reality for every investor. An excellent choice to diversify your portfolio of securities and start investing in a sector that in recent years has seen a significant steady economic growth. But what are the most valuable and interesting blends for investment purposes?
How to invest in coffee
Given the fact that the raw materials market can be as profitable as it is risky, how can we invest in coffee?
If you decide to take this step, you can choose between traded funds, futures or shares of companies.
ETF (Exchange traded funds)
The safest way to invest in coffee is to opt for EFTs, funds that follow a market index step by step and can be traded at any time as if they were stocks. Among the best funds is the EFT Dow Jones-UBS Coffee ETN (JO).
Because this future is related to the coffee sales of the following month, you can have more control over the investment and even decide to exit if the month is not profitable.
These are financial instruments that allow you to gain on price fluctuations in the short term.
As explained above, coffee futures are quoted on NYMEX under the symbol KC; you can decide to invest up to five futures in a year. The standard contract is Coffee C, which is the price of the Arabica coffee quality.
You have to be very careful because although there is the possibility of high profits, we speak of a contract of the value in terms of coffee weight of 37,500 pounds.
Shares of coffee companies
It is undoubtedly the riskiest alternative if you decide to invest in coffee.
If you opt for this option, it is worth considering only those companies that are growing.
It may be useful to buy shares of a company that sells not only coffee, but also other types of products, so as to counteract the blows in case of unwelcome fluctuations in the market.
Coffee prices: analysis
In order to carry out an effective and in-depth analysis of the coffee price in real time, it is essential to use good graphs that give precise and live information.
This is because the coffee flow is very volatile, it changes quickly and it is essential to know the different movements and micromovements of the market.
Technical analysis of the market is very important when deciding to invest in coffee and serves to predict future trends in assets. This type of analysis uses graphs, tables and historical data available to us.
The preferred charts are those that include indicators such as support and resistance levels, moving averages or pivot points.
The level of support generally corresponds to a block in the downward trend of prices while the resistance is the price level where the growth of the same stops.
Moving averages are effective systems for following the course of the market and are one of the tools most used by traders. Their usefulness is due to the fact that they allow you to understand not only the current trend of the financial market but also the future.
Despite being the least used of the indicators, pivot points are actually very useful graphical signals to recognize critical levels of support or resistance and predict future market movements.
The technical analysis of the coffee quotation must be supplemented by a fundamental analysis.
This type of analysis allows to know the value, the performance of a company and its current financial situation. In addition to this, the fundamental analysis helps to determine the reaction that the market will have in relation to the data examined.
There are two varieties of coffee listed on the financial market:
- Arabica: grows in the hills and mountains up to 2,000 meters high;
- Robust: grows in areas ranging from sea level up to 800 meters high.
While the Robusta harvest is simpler, the cultivation of Arabica requires more careful and delicate processing.
World coffee production is 70% Arabica and 30% Robusta. Although robusta is of lower quality and less tasty, it is only 28% less than arabica. It is therefore to be considered to all intents and purposes a valid alternative to the latter.
Another important difference is that the Arabica quality is traded in New York, the robust one is negotiated in London.