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After crude oil, coffee is the second most traded commodity in the world. It’s integrated into our daily routines, is a staple on our high streets and global demand has increased considerably in recent years. Take a coffee break and read about why investors trade on this bitter commodity. Remember that coffee can be complex, nuanced and volatile so it’s important to do your research into how and where coffee is made and understand the risks.
There are three main ways to invest in coffee. Each method comes with a different level of risk, so it’s important to do your research and choose the method best suited to you before investing in the commodity.
It’s possible to invest in coffee. There are a couple of different ways to do so, so it’s worth looking into the options available to you and choosing one that matches your investment style and expertise.
For example, exchange-traded funds might be a good option for beginners, as they’re already diversified to a degree. Shares might be good for confident beginners all the way through to experienced investors, as long as you’re confident in creating your portfolio. Meanwhile, options and futures contracts are more suited to experienced investors.
An obvious way of investing in coffee is to invest in coffee companies. These companies sell the commodity or are involved in the production process. Industry leaders include Starbucks (SBUX), Dunkin’ Brands (DNKN), and J.M. Smucker’s (SJM). It can be a good idea to diversify your portfolio by investing in a range of different companies.
A way to reduce your risk even further would be to purchase stock in a company that sells coffee in addition to other products, such as Nestle, Kraft or Procter and Gamble.
Whether you’re a fan of an oat milk flat white or prefer a Cookies & Cream Frappuccino with extra whipped cream, Starbucks has something for everyone. Starbucks has more than 32,000 stores worldwide and uses approximately 40 million kilos of coffee each year (that’s about 4 times the weight of The Eiffel Tower).
J. M. Smucker, or Smucker, is a food manufacturer based in North America. It has 3 business units: coffee, pet food and consumer foods. It makes at-home coffee with the Dunkin’, 1850, Café Bustelo, Café Pilon, Folgers and Medaglia D’Oro.
Exchange-traded funds (ETFs) are a type of investment made up of a collection of commodities, equities, bonds, or currencies, allowing for diversification across an entire industry by tracking its overall success.
Commodity-based coffee ETFs operate with an arbitrage mechanism designed to allow investors to directly track the performance of the coffee market as a whole.
Currently, there are two ETFs available that are exclusively invested in coffee: iPath Dow Jones-UBS Coffee Subindex Total Return ETN (JO) and the iPath Pure Beta Coffee ETN (CAFE).
Compare brokers to buy coffee ETFs
Futures and options contracts are one of the most direct ways to trade a commodity. When you purchase an option or a future, you are buying a contract to purchase a commodity, in this case coffee, at a future date at a specified price, or the option to buy a commodity at a future date at a specified price.
Investing in coffee futures essentially means betting on what the coffee will sell for at a specific date and place. The Coffee C contract offers trades five times a year and covers coffee bean deliveries from 19 countries. Each contract is for 37,000 pounds of coffee, so not a small investment.
Futures and options can be extremely volatile and are far riskier than the other investment options. They also offer the greatest potential return, however, you have to get the timing and price movement right to see a profit on your investment.
Compare brokers to buy coffee contracts
Most of us start our mornings with a cup of coffee – some even swear they couldn’t live without it. More than 1 billion people drink coffee every day. Coffee is fairly cheap for businesses to buy, but has a high markup in coffee shops and restaurants. It’s thought that the cost to make a coffee could be as low as 8p, with an additional 6p for those that want milk. A latte at Starbucks costs more than £3.00, giving a markup of more than £2.80 per cup on the price of ingredients.
60% of people we surveyed said they already invest in coffee stocks or would consider investing in coffee stocks.
| Response | |
|---|---|
| I would consider it | 52.21% |
| Not sure | 20.85% |
| I wouldn't consider it | 19.56% |
| I already invest in this | 7.38% |
The price of coffee can fluctuate depending on a range of factors, many of which are out of our control, making the commodity volatile and unpredictable. These factors include:
To make comparing even easier we came up with the Finder Score. Costs, features, ease and range of investments across 30+ platforms are all weighted and scaled to produce a score out of 10. The higher the score the better the platform – simple.
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