Coffee is a member of the soft commodities group along with other items grown by farmers, including sugar, orange juice, cocoa, and fruit. Most of these commodities, including coffee, are prone to wild swings in price, and traders must consider a variety of factors about coffee production and demand when making decisions regarding coffee futures. There are two main types of coffee: Robusta and Arabica. These companies together purchase almost 50 percent of all coffee produced worldwide, and they’re known as the “Big 4” coffee roasters. These companies own many coffee-related brands and produce coffee products under various names. Because of the volume of coffee these enterprises purchase, any changes in their demand can affect the prices of coffee futures.
The Arabica bean may be considered higher quality by some in the coffee industry, and you’re likely drinking Arabica bean coffee when you buy Starbucks or other premium coffees. Regarding trading coffee futures, for simplicity, this article will focus on Arabica beans. The fundamentals of Robusta can affect Arabica prices because Robusta is a very close substitute. Arabica beans are predominately grown in Brazil, while Columbia is the second largest producer. They are also grown in Central America, but most coffee traders focus on Brazil when they are trading coffee. Coffee grows on small trees, so the crops stay in the ground all year.
This makes them susceptible to the elements of weather. The trees must flower each spring to produce a good crop, and it’s important to have weather that’s conducive to the trees blooming successfully during this period. Weather plays a big role in coffee production. Prolonged periods of excessive moisture or dry weather can affect the yield numbers. However, frost or a freeze poses the biggest threat to coffee production.