When it comes time to add coffee exposure to portfolios, investors may be left with questions regarding the best ways to achieve that goal. Trading coffee can be a lucrative opportunity; these futures offer strong intraday liquidity that comes attached with enticing volatility.
But be warned, trading soft commodities like coffee is not for the faint of heart. Positions can be devastated on a moment’s notice and can create a major headache for traders. Those looking to wade into these waters should always have a profit objective in mind as well as a disciplined entrance and exit strategy. In this article, we detail how to trade futures on this soft commodity [see also The Ten Commandments of Commodity Investing].
First things first, those looking to invest in futures will need to decide which exchanges they would like to utilize. Below, we outline three of the most popular options in the world for trading coffee futures.
- New York Mercantile Exchange: The NYMEX is one of the most popular destinations in the world for coffee traders. The following monthly coffee contracts are available on the NYMEX: March, May, July, September, and December. Each contract, quoted in U.S. dollars per pound, represents 37,500 pounds of the commodity with the product symbol KT. Like the other soft commodities on the NYMEX, coffee trading takes place Sunday to Friday between the hours of 6:00 p.m. and 5:15 p.m (CST), meaning that investors can make a play for approximately 23 hours every day (there is a 45-minute break period between each day) [see also The Ultimate Guide To Coffee Investing].
- Intercontinental Exchange: The ICE is another big name for coffee traders as it offers similar contracts to the NYMEX. Trading under the symbol KC, the ICE’s coffee contract “prices physical delivery of exchange-grade green beans, from one of 19 countries of origin in a licensed warehouse to one of several ports in the U.S. and Europe, with stated premiums/discounts for ports and growths”. Contracts here are priced in cents and hundredths of a cent up to two decimal places with available months being March, May, July, September, and December.
- Tokyo Grain Exchange: Known as the TGE, this exchange will offer investors an international spin on trading coffee futures. The contracts, which have been trading since mid-1998, are representative of 50 bags (3,450 kilograms) and are quoted in yen per bag. Contract months include January, March, May, July, September, and November [see also 50 Ways To Invest In Agriculture].
Common Coffee Trading Strategies
Coffee can be traded at any time during the year, but investors will want to keep a close eye on harvest seasons as well as general weather trends involving the world’s largest producers. Floods, droughts, and high temperatures (among many others) can be telling signs of how coffee prices will react in the coming months. While investing in futures contracts is the most direct method of obtaining exposure to this commodity, futures trading falls beyond the risk spectrum of many [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk].
For those looking for an alternative way to play this commodity, there are three exchange-traded products available specifically designed to help investors obtain exposure to this soft commodity:
|JO||Dow Jones-UBS Coffee ETN||0.75%|
|CAFE||Pure Beta Coffee ETN||0.75%|
|JJS||Dow Jones-UBS Softs Total Return Sub-Index ETN||0.75%|
Further Resources and Reading
For further reading on coffee and related topics, check out some of the links below.
- Commodity HQ Trading Center – Our free trading center offers details on your favorite commodity futures and exchange-traded products.
- Commodity HQ Heatmap Tool – Our free tool allows investors to easily compare the past performance of their favorite commodities.
- NYMEX Coffee Page – Home page for Coffee on the NYMEX.
- ICE Coffee Page – Home page for Coffee on the ICE.
- TGE Coffee Page – Home page for Coffee on the MCX.
Disclosure: No positions at time of writing.