As Anthony Grech of IG Index recently reported “It is also important to note that the production of both coffee types, as with any agricultural commodity, is primarily dependent on weather conditions, harvesting practices and disease. Therefore monitoring these variables, particularly in the major coffee producing countries, will provide an understanding of coffee supply and its intrinsic value, when compared with demand”
Key players in the market are Procter and Gamble, Kraft, Nestle and Sara Lee. Together this ‘Big Four’ buys most of the world’s raw coffee. Therefore monitoring the buying habits of these companies would help provide a better understanding of coffee demand. From a micro perspective, marketing and profit margins and also play an important role in driving demand
You can spread bet on both Arabica Coffee “C” and Robusta with spread betting companies like World Spreads and IG Index
Note that coffee is traded in US dollars. That means one of the biggest factors affecting the price is the exchange rate, just like Crude Oil and Gold. Because coffee is traded in US Dollars then, all things being equal, Coffee will tend to follows the dollar exchange rates. If the Dollar goes down against the Euro, the price of Coffee should go up and vice versa.
Finally, it is worth noting that demand for coffee is considered to be price inelastic. This means that when coffee prices increase, individuals do not proportionally reduce their coffee consumption, and when coffee prices decline, consumer demand for coffee does not proportionally rise to any great extent
Before you start trading coffee note that spread betting carries a high level of risk to your funds. You can lose more than you initially invest. It may not suit all investors. Only speculate with funds that you can afford to lose. Ensure you understand the risks and seek independent financial advice if and when necessary.
Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
'Spread Betting on Coffee' by SD, updated 25-Aug-08
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Risk Warning: Spread betting carries a high level of risk to your capital and you may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
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