I like to take my coffee early in the morning. The first thing I do in the morning is make coffee for myself. Otherwise, my day does not start. How about you? Most probably, you are like me too. We are all alike. We all love to drink coffee. Precisely just because we love coffee too much, coffee is an important global commodity after crude oil. I mean after crude oil, coffee is the second largest traded commodity in the world.
Just like other commodities, coffee production is dominated by a few countries led by Brazil, Columbia and Vietnam. Now, if you want to know more you can visit the website of International Coffee Organization and The National Coffee Association of USA. How about making money from coffee futures while drinking your cup of coffee? Hey, it's not a bad idea!
The main purpose of the coffee futures just like any other futures contract is hedging against wild price swings in the coffee market. Coffee producers and purchasers use coffee futures for hedging againt the volatility in the coffee market. Now, we use that volatility for speculation and making money. We are just interested in making quick bucks from the volatility in the coffee market. Now, coffee futures are highly liquid and are traded on NYBOT (New York Board Of Trade). Trading coffee futures is a good way to make money for small investors.
NYBOT is one of the most popular commodity trading exchanges especially agricultural commodities. Did you watch the movie," Trading Places." It is all about trading orange juice futures. Eddie Murphy and Dan Aykroyd are small time orange juice futures traders about to corner the market. Though, the movie does not show coffee futures trading but you can well imagine the potential of coffee futures and how important they are in our lives.
The contract ticker symbol is KC and its size is 37,500 pounds with price fluctuation of $0.0005/pound. Trading months are March, May, July, September and December. Because of seasonality, cyclicality and geopolitical factors, coffee can be highly volatile commodity and can experience extreme price swings. These price swings are what futures traders bet on. Now before trading coffee futures do a good research on the coffee market inside out.
When you want your coffee in the morning, you want the right flavor. If by mistake, you get the wrong flavor, you won't take your cup of coffee in the morning. In the same way, knowing the different types of coffee contracts and what are the best ones is essential before you decide to invest in coffee futures.
There are two types of coffee beans that are traded in the coffee market. The first one is the Arabica Coffee. This is the most popular and the most widely grown coffee in the world. It gets grown in Brazil and Indonesia as well as other countries. But these two countries are the largest producers of this variety. More than 60% of the global production is Arabica Coffee. It is expensive than the other variety of coffee that is the Robusta. Robusta is easier to grow as compared to Arabica. It is less expensive than Arabica.
By the way the coffee futures contract traded on NYBOT are based on pure Arabica Coffee. Now coffee is a serious business and you can profit from the coffee craze like the Starbucks that has taken hold of the United States and is spreading rapidly in Europe and part of the developing world like China and India.
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