How To Invest In Coffee
The first recorded use of coffee beans to produce a beverage dates all the way back to 15th-century Ethiopian coffee. Since then, coffee spread all over the world and became one of the most popular drinks ever. Coffee is all around us: coffee shops are found all over the developed world, and coffee farms help over 25 million people (mostly in Central and South America) provide for their families.
Coffee is among some of the most sought after and traded commodities in the world, and the coffee export market alone is worth around $20 billion. Simply put, coffee represents a huge global market. With these numbers in mind, coffee may be a commodity to consider if you are looking to diversify your investment portfolio. Here are a few ways to invest in coffee.
Invest in coffee futures
Coffee futures are used to trade the actual physical commodity of coffee at a predetermined price. They represent a great opportunity for big returns on your investment, but they also carry a notable amount of risk. The price of coffee fluctuates fairly frequently. Just like any other agricultural asset, coffee is susceptible to environmental hurdles and unexpected temperature fluctuations, so it’s important to properly research your investment options before making a decision.
While the price of coffee futures is steadily rising in recent years, there are no guarantees that will continue. As with any other investment, it is wise to only invest a number of funds you can ultimately afford to lose. This type of investment may appeal to anyone who wants to implement a momentum trading strategy. A single coffee futures contract can typically control over 30,000 pounds of coffee and come with a buy-in fee of well over $3,000. These types of investments are best suited for experienced investors.
Invest in coffee roaster stocks
Coffee roaster stocks can be a much safer investment option since they aren’t tied to temperamental changes in the weather or economic conditions where the coffee beans are grown. Plus, many of these stocks aren’t solely focused on coffee, which can be an added safety measure if you feel unsure about focusing solely on the actual commodity of coffee. The J.M. Smucker company, for example, is probably best known for its jelly and jam products but also found success selling an assortment of Folgers coffee products. Keurig Dr. Pepper is an affordable stock and another example of a company that carved out a unique spot for itself within the coffee market with its ever-popular single cup coffee roasters.
Invest in exchange-traded funds
Exchange traded funds (or “ETFs” for short) also offer less risk than coffee futures, and you can choose between investing in a fund completely devoted to coffee or a fund that combines coffee with other commodities.
There are only two ETFs currently available that are fully devoted to coffee: the Dow Jones UBS Coffee ETN and the Pure Beta Coffee ETN. The Dow Jones UBS Coffee ETN was the first ever coffee-only ETF ever formulated, and only tracks one coffee future per month. This means you would have the opportunity once per month to remove your investment. This fund is better suited for those looking to be an active trader or investor who will monitor the market closely. The Pure Beta Coffee ETN offers investors less control and opportunities to opt out but is also less risky. This fund is beneficial for newer investors who are looking to be more hands off.
Regardless of your investing experience or skill level, there are ways to invest in coffee that match what you’re looking for. You just have to explore your options.