A beginner’s guide to coffee: Price, uses & market overview

Explore a thorough overview of the coffee market, learn how it works in simple terms and get to grips with its significance as a popular global commodity.
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Updated: Nov 27, 2023
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On this page, we explore everything you need to know about coffee. Gain insights into coffee market trends, pricing mechanisms, and the environmental impact of coffee. 

Read on to learn more about this popular commodity and find links to beginner friendly guides explaining how you can get involved in coffee. 

What is coffee?

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Coffee is the most popular beverage worldwide with more than 2.5 billion cups consumed daily. Prepared from the roasted seeds of the coffee plant and containing caffeine, its popularity has fueled an industry spanning everything from speciality cafes to retail coffee products to commercial buyers. 

Coffee cultivation dates back centuries but global trade and consumption has surged in recent history. Today, the coffee industry employs over 25 million farms and generates an estimated $125 billion per year. Africa still leads production, but cultivation has grown tremendously across Central and South America. 

Coffee market overview

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Despite being a globally traded commodity for centuries, coffee futures only emerged in the late 19th century. Traded on the New York Cocoa Exchange, farmers used coffee futures to hedge against violent and frequent price swings. 

In 2007, coffee futures went mainstream when Starbucks helped establish trading ont the Intercontinental Exchange (ICE). Today, coffee beans are traded on various commodity markets with price benchmarks set at exchanges in London, New York, and Sao Paulo. 

There are two main types of contracts, Arabia and Robusta. Coffee is one of the most valuable export crops traded across the world. In the past five years, the price of coffee has more than doubled in value thanks to a surge in demand and optimum growing conditions. 

Is coffee valuable? 

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Yes, coffee is a valuable commodity and there are numerous reasons why investors are attracted to the market. We have highlighted some of these key fundamentals below, explaining what they are and why they matter.

  • 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

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You can invest in coffee by using a commodity trading platform. These platforms offer a range of commodities and are very easy to use. There are different platforms suitable for specific requirements. 

Some let you buy coffee, others let you trade coffee, and many are designed for investing in the agricultural commodity. Visit our dedicated guide to discover how to invest in coffee.

Coffee in your investment portfolio

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A diverse investment portfolio can help protect you during market uncertainty, and the inclusion of coffee can add value while allowing you to spread your money across various markets. 

Coffee often moves independently to traditional investments like stocks and bonds. You can include coffee in your portfolio as a hedge against potential losses. During times of economic uncertainty, investors view commodities such as coffee as attractive options. 

Coffee’s long history and the fact it is the most consumed drink in the world make it a good long term play.

Coffee vs other commodities

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Coffee is an agricultural commodity like wheat, corn, and cocoa. Each commodity is unique in its own way and offers different features for investors and traders. You can learn more about specific agricultural commodities using our dedicated guides below. 

  • Wheat. Wheat is a grain that is grown around the world and is used for various foods. 
  • Corn. Corn is one of the most versatile commodities with many uses, including livestock feed, biofuel, oil, and food. 
  • Rice. Rice is the most popular grain commodity and a staple for half the world’s population 
  • Soybean. Soybean is a major global commodity used for livestock feed and cooking oil.
  • Cocoa. Cocoa is the key ingredient in chocolate and a globally important commodity. 

FAQs

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Risk disclaimer
Prash Raval
Financial Writer
Prash is a financial writer for Invezz covering FX, the stock market and investing. For over a decade he has traded spot FX full time while... read more.