How to invest in coffee

Coffee is the most popular beverage worldwide, with over 2 billion cups consumed daily. In this guide, learn how to invest in this stable agricultural commodity.
Updated: Oct 11, 2022
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This beginner-friendly page teaches you how to invest in coffee. We explain why you may want to invest, offer a step-by-step guide on how to invest, and explain what affects its price. 

Where can I invest in coffee online?

If you already know what you need to about coffee investing, you can click on our expertly selected brokers below. Offering easy to use platforms and low fees, they are some of the top-rated ones around. Alternatively, continue scrolling to learn more about coffee.

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Why invest in coffee?

There’s a broad range of reasons why investing in coffee makes a good investment. Although, the primary reason for most people is to protect against inflation. Below we’ve listed and explained some of the top reasons to invest in coffee. 

  • Hedge against inflation. Inflation is when money loses value over time, and every country has their inflation targets and rates. It’s a risk all investors face, and one way to protect or hedge against it is by investing in commodities. When inflation is on the rise, agricultural products like coffee will rise in value too.  
  • Portfolio diversification. Spreading money across different investments is a good way to diversify a portfolio. However, investing in commodities offers a different approach. Coffee is a basic product that’s able to withstand economically bad times. Including it in your portfolio can add a safety net when other sectors are struggling. 
  • Speculation. Coffee is just like any other market, and often people will invest in it for the sole purpose of speculating on its price. Its one of the leading commodities and has a stable market making it an attractive choice for price speculators. Speculators sometimes look to invest for a short time as demands fluctuate. 
  • Rising demand. The coffee market has been growing in recent times and is expected to grow by 6.99% annually by 2025. Emerging economies such as China and India are also experiencing more coffee drinkers, which will add to its popularity. Investing in it is an easy way to capitalise on its growing demand. 

How to invest in coffee

If you want to invest in coffee, you can follow the step-by-step guide below, explaining what you need to do before investing. 

  1. Decide on an investment strategy. The first thing you’ll need to do is make a plan and decide what type of strategy you intend on using. You’ll want to consider if you’re a passive or active investor, and determining how much you’re willing to risk will guide you towards how you’ll invest.
  2. Do your research. This guide will help you with your research and what to consider before investing. There are many different ways you can invest in coffee which we’ve explained further below. Conducing well balanced fundamental analysis of the coffee industry can help with your investment. 
  3. Set a budget. It goes without saying that you should only invest what you can comfortably afford to lose. It’s vital to set a budget and stick to it before investing. 
  4. Choose between the long term and short term. Having a long or short term plan in place will be the next thing you need to consider. If you’re looking to speculate on short term trends or demands, you may consider looking into futures contracts. However, if you have a longer-term outlook, ETFs may be better. 
  5. Find an investment platform. All brokers offer different services, so it’s a good idea to check with yours if they allow you to invest in coffee. Earlier on this page, we highlighted a few platforms that would enable coffee investing, which you can refer to by clicking the blue button below. 

Ways to invest in coffee

Investing in coffee is not a complicated process, although there are several factors that can determine what the best approach is for you. Below we’ve listed and explained the different ways you can invest in the coffee industry.

Invest in coffee stocks

Purchasing shares in coffee stocks is a good way to gain exposure to the industry. Many companies on the stock market conduct their business in the coffee industry—these range from well-known brands such as Starbucks to agricultural coffee bean farmers. Usually, the price of coffee stocks will be correlated with the commodity’s price. 

Invest in coffee ETFs

One of the easiest ways for beginners to invest in the coffee industry is by buying shares in exchange-traded funds. ETFs track the performance of a particular industry, and there are a couple that are specifically targetted to the coffee sector, the most popular being the Wisdom Tree coffee ETF. 

Invest in coffee mutual funds

Similar to ETFs, you can buy shares in a mutual fund. However, unlike ETFs, mutual funds are managed by a professional fund manager who controls what the fund buys and sells. There are currently no solely coffee-focused funds; however, it is possible to invest in funds that hold some coffee companies. Using this method will allow you to gain exposure to a broader market. 

Invest in coffee futures

Futures contracts are the most common way to speculate on short term price changes. They are an agreement to make a trade at a future date for a pre-agreed price. Investing via futures is a difficult task and is most suited to someone with experience in trading. Coffee futures contracts also require a detailed understanding of what impacts short term prices. 

How does the coffee market work?

Like all markets, the price of coffee is directly related to its supply and demand. There are lots of different factors that affect its supply and demand, and in the bullet points below, we’ve explained a few of the main ones. 

  • Weather. Extreme heat or rain plays a significant role in coffee bean crops and can directly impact its price. Coffee bean farms can produce lower crop yields if weather conditions are not in keeping with whats required. If farmers cannot produce enough coffee, then supply would be limited, and its price would likely increase. 
  • Political instability. Most of the world’s coffee is grown in regions where governments are often unstable. For example, a lot of coffee plantations exist in South America or Africa. Both areas are well known for experiencing political issues at times, and an unstable government can affect coffee exports, thus impacting its price. 
  • Exchange rates. The British Pound and U.S. Dollar both play an essential role in the price of coffee. It is traded on the New York and London stock exchanges. Buyers of coffee using another currency need to closely monitor exchange rates as falls in either would impact its price. 
  • Environment. Farmers are always on the lookout for the best places to grow their crops and what’s around them can impact their yields. Chemical usage can greatly disrupt coffee bean growth, as can disease. In 2009, South American farmers saw crop yields drop by 40% when fungus started to grow on coffee leaves. 

When should you invest in coffee?

Often, the best time to invest in coffee is when inflation is rising. Earlier in this guide, we mentioned one of the main reasons people invest in coffee is to hedge against inflation. When inflation rates are creeping higher, it’s usually a good time to buy commodities such as coffee. 

Keeping up to date with the points we discussed in the previous section can help time your investment. Weather, political instability, and exchange rates, especially in the main regions where coffee beans are farmed, can all greatly impact when you should invest. 

Is coffee a good investment in 2022?

It is possible that it could be, although there are a few things to consider before investing. Demand continues to rise, especially in regions where coffee is not regularly consumed on a wide scale. For example, the Chinese market is expected to grow annually by over 10% until 2025. In 2020, an average of one new coffee shop opened daily in Chengdu. 

Rising inflation and fluctuating exchange rates could also make investing in coffee this year a good choice. Inflation continues to grow in many parts of the world, and it is likely agricultural commodities like coffee will benefit. 

What should I do now?

Now that you’ve gained some insight into the coffee market, you may be ready to make your first investment. Registering with a broker that offers a coffee market could be a good next step. You can also check out our learning hub, where we provide free beginner-friendly courses on the stock market, foreign exchange, and crypto. Keeping up-to-date with the latest news will also help your investments, which you can do by clicking the links below.

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Prash Raval
Financial Writer
When not researching stocks or trading, Prash can be found either on the golf course, walking his dog or teaching his son how to kick a… read more.