Clear Lake Coffee Roasters Industry insider series: The Buzz Behind the Bean: Exploring the Coffee Futures Trading Market: By a Local industry insider

 

The Buzz Behind the Bean: Exploring the Coffee Futures Trading Market

Coffee is one of the world’s most beloved beverages, enjoyed by billions every day. But beyond the aroma and flavor lies a dynamic and complex global industry fueled by supply, demand, and speculation: the coffee futures trading market. As the second most traded commodity in the world after crude oil, coffee is at the center of a high-stakes financial ecosystem that impacts farmers, exporters, traders, and coffee lovers alike.

In this blog post, we’ll dive into the world of coffee futures—exploring how this financial instrument helps stabilize prices, mitigate risks for producers, and offer opportunities for investors. From the volatile factors that influence prices, like weather conditions and geopolitical tensions, to the role of exchanges such as ICE (Intercontinental Exchange), the coffee futures market is as intricate as the process of brewing the perfect cup. Whether you're a seasoned trader or just a curious coffee enthusiast, understanding the mechanics of coffee futures offers fascinating insights into how your morning cup of joe comes to life.

Coffee is one of the world's most important cash commodities. Coffee is the common name for any type of tree in the genus madder family. Coffee is a tropical evergreen shrub that has the potential to grow 100 feet tall. The coffee tree grows in tropical regions between the Tropics of Cancer and Capricorn in areas with abundant rainfall, year-round warm temperatures averaging about 70 degrees Fahrenheit, and no frost. In the U.S., the only places that produce any significant amount of coffee are Puerto Rico and Hawaii. The coffee plant will produce its first full crop of beans at about five years old and then be productive for about 15 years. The average coffee tree produces enough beans to make about 1 to 1 ½ pound of roasted coffee per year. It takes approximately 4,000 handpicked green coffee beans to make a pound of coffee. Wine was the first drink made from the coffee tree using coffee cherries, honey, and water. In the 17th century, the first coffee house, also known as a "penny university" because of the price per cup, opened in London. The London Stock Exchange grew from one of these first coffee houses.

Coffee is generally classified into two types of beans: arabica and robusta. The most widely produced coffee is arabica, which makes up about 70 percent of total production. It grows mainly at high altitudes of 600 to 2,000 meters, with Brazil and Colombia being the largest producers. Arabic coffee is traded at the Intercontinental Exchange (ICE). The stronger of the two types is robusta. It is grown at lower altitudes, with the largest producers being Indonesia, West Africa, Brazil, and Vietnam. Robusta coffee is traded on the LIFFE exchange.

Ninety percent of the world coffee trade is in green (unroasted) coffee beans. Seasonal factors have a significant influence on the price of coffee. There is no extreme peak in world production at any one time of the year, although coffee consumption declines by 12 percent or more below the year's average in the warm summer months. Therefore, coffee imports and roasts both tend to decline in spring and summer and pick up again in fall and winter.

Meager prices for coffee can create serious long-term problems for coffee producers. When prices fall below production costs, there is little economic incentive to produce coffee, and coffee trees may be neglected or completely abandoned. When prices are low, producers cannot afford to hire the labor needed to maintain the trees and pick the crop at harvest. The result is that trees yield less due to reduced use of fertilizer and fewer employed coffee workers. One effect is a decline in the quality of the coffee that is produced. Higher quality Arabica coffee is often produced at higher altitudes, which entails higher costs. It is this coffee that is often abandoned. Although the pressure on producers can be severe, the market eventually comes back into balance as supply declines in response to low prices.

Coffee prices are subject to upward spikes in June, July, and August due to possible freeze scares in Brazil during the winter months in the Southern Hemisphere. The Brazilian coffee crop is harvested starting in May and extending for several weeks into the winter months in Brazil. A major freeze in Brazil occurs roughly every five years on average.



Coffee futures and options are traded at the ICE Futures U.S. and ICE Futures Europe exchanges, and the B3 Exchange (formerly BM&F/BOVESPA). Coffee futures are traded on the JSE Securities Exchange (JSE).

Prices - ICE Arabica coffee futures prices ('symbol' KC) began 2023 on a weak note and fell to a 2-1/2 year low in January of 142.05 cents per pound. Coffee prices were under pressure from the outlook for a bumper crop in Brazil after Conab, Brazil's crop forecasting agency, projected in January that Brazil's 2023 coffee production would climb +7.9% yr/yr to 54.9 million bags. A rebound in coffee supplies also weighed on prices after ICE-monitored arabica coffee inventories climbed to a 1-1/2 year high in February. Coffee prices recovered into April and posted a 1-1/4 year high of 207.45 cents per pound. Concern about a global coffee deficit boosted coffee prices after the International Coffee Organization (ICO) projected in April that the global 2022/23 coffee deficit would widen to 7.3 million bags from 7.1 million bags in 2021/22. The El Nino weather event that began in June 2023 was bullish for coffee prices. An El Nino pattern typically brings heavy rain to Brazil and drought to India, negatively impacting coffee crop production. Strength in the Brazilian real also underpinned coffee prices in mid-2023 after the real climbed to a 1-1/2 year high against the dollar in July. The stronger real discourages export selling from Brazil's coffee producers. However, coffee prices then ratcheted lower into October as favorable weather boosted Brazil's coffee crop. ICO projected that 2023/24 global coffee production would climb +5.8% y/y to 178 million bags due to an exceptional off-biennial crop year. Coffee prices then reversed and pushed higher into year-end as supplies tightened. In November, ICE-monitored arabica coffee inventories fell to a 24-year low of 224,066 bags. Coffee prices finished 2023 up +12.5% yr/yr at 188.30 cents per pound.

Supply - World coffee production in the 2023/24 marketing year (July-June) is expected to rise by +4.2% yr/yr to 171.425 million bags (1 bag equals 60 kilograms or 132.3 pounds). Coffee ending stocks in the 2023/24 marketing year are expected to fall by -4.0% yr/yr to 26.529 million bags. Brazil is the world's largest coffee producer by far with 38.7% of the world's supply, followed by Vietnam with 16.0%.

Demand - World consumption of green coffee in 2023/24 is expected to rise by +0.3% yr/yr to 169.500 million bags.

Trade - World coffee exports in 2023/24 are forecasted to rise by +5.8% yr/yr to 142.226 million bags, below the 2020/21 record high of 144.386 million bags. The world's largest exporters of coffee in 2023/24 are expected to be Brazil with 30.8% of world exports, Vietnam with 17.6%, and Columbia with 8.4%. US coffee imports in 2023 rose by +41.7% yr/yr to 40.311 million bags, a new record high. The key countries from which the US imported coffee in 2023 were Brazil, accounting for 15.0% of total US imports, Columbia for 10.9%, Mexico for 3.7%, and Guatemala for 3.2%.

Off to a 'strong' start for marketing year 2025: 

Arabica Coffee Rallies to a Record High on Tight Supplies

March 2025 arabica coffee Friday closed up +3.60 (+1.05%), and March ICE robusta coffee closed up +62 (+1.13%).

Coffee prices on Friday (Jan 25, 2025) added to this week's sharp rally, with arabica posting a new record nearest-futures high and robusta posting a 6-week high.   Lingering global coffee supply concerns are supporting prices and fueling fund buying of coffee.  On December 17, Volcafe cut its 2025/26 Brazil arabica coffee production estimate to 34.4 million bags, down by about 11 million bags from a September estimate after a crop tour revealed the severity of an extended drought in Brazil.  Volcafe projects a global 2025/26 arabica coffee deficit of -8.5 million bags, wider than the -5.5 million bag deficit for 2024/25 and the fifth consecutive year of deficits.

Strength in the Brazilian real  also supports coffee prices after the real rallied to a 1-3/4 month high Friday against the dollar.  The stronger real discourages export selling from Brazil's coffee producers,

A bullish factor for coffee was Tuesday's action by Conab, Brazil's government crop forecasting agency, to cut its 2024 Brazil coffee crop estimate by -1.1% to 54.2 million bags from a September estimate of 54.8 million bags.

Arabica coffee also has support from below-normal rainfall in Brazil after Somar Meteorologia reported Monday that Brazil's biggest arabica coffee growing area of Minas Gerais received 29.6 mm of rain last week, or only 53% of the historical average.  

Coffee prices saw support after consultancy group Safras & Mercado on December 20 estimated the 2025/26 Brazilian coffee crop at 62.45 million bags, down -5% yr/yr.  Safras predicts that arabica output will fall by 15% yr/yr to 38.35 million bags due to drought and that robusta production will be 24.1 million bags.

The impact of dry El Nino weather last year may lead to longer-term coffee crop damage in South and Central America.  Rainfall in Brazil has consistently been below average since last April, damaging coffee trees during the all-important flowering stage and reducing the prospects for Brazil's 2025/26 arabica coffee crop.  Brazil has been facing the driest weather since 1981, according to the natural disaster monitoring center Cemaden.  Also, Colombia, the world's second-largest arabica producer, is slowly recovering from the El Nino-spurred drought last year.

Robusta coffee prices are underpinned by reduced robusta production.  Due to drought, Vietnam's coffee production in the 2023/24 crop year dropped by -20% to 1.472 MMT, the smallest crop in four years.  The USDA FAS on May 31 projected that Vietnam's robusta coffee production in the new marketing year of 2024/25 will dip slightly to 27.9 million bags from 28 million bags in the 2023/24 season.  In addition,  Vietnam's General Statistics Office reported last Friday that 2024 Vietnam coffee exports fell -17.1% y/y to 1.35 MMT.  Conversely, the Vietnam Coffee and Cocoa Association on December 3 raised its 2024/25 Vietnam coffee production estimate to 28 million bags from an October estimate of 27 million bags.  

Higher coffee exports from Brazil are bearish for prices.   Last Wednesday, Cecafe reported that Brazil's 2024 arabica coffee exports jumped +20% y/y to a record 37 million bags, and 2024 Brazil robusta coffee exports surged +98% y/y to a record 9.4 million bags.  

An increase in inventories is bearish for coffee prices after ICE-monitored robusta coffee inventories rose to a 3-3/4 month high Friday of 4,603 lots.  ICE-monitored arabica coffee inventories rose to a 2-1/2 year high of 993,562 bags on January 6, but have since fallen back and dropped to a 6-week low of 928.935 bags on Friday.  

News of larger global coffee exports is bearish for prices.  On December 5, the International Coffee Organization (ICO) reported that Oct global coffee exports for the beginning of the 2024/25 season rose +15.1% y/y to 11.13 mln bags.  Global coffee exports for 2023/24 (Oct-Sep) rose +11.7% y/y to 137.27 mln bags.  Also, Brazilian coffee export news has been bearish.  Cecafe reported Wednesday that  Brazil's 2024 coffee exports rose +30.2% y/y to a record 46.3 million bags.  

In a bearish factor, the International Coffee Organization (ICO) recently said that 2023/24 global coffee production climbed +5.8% y/y to a record 178 million bags due to an exceptional off-biennial crop year.  ICO also said global 2023/24 coffee consumption rose +2.2% y/y to a record 177 million bags, resulting in a 1 million bag coffee surplus.

The USDA's biannual report on December 18 was mixed for coffee prices.  The USDA's Foreign Agriculture Service (FAS) projected that world coffee production in 2024/25 will increase +4.0% y/y to 174.855 million bags, with a +1.5% increase in arabica production to 97.845 million bags and a +7.5% increase in robusta production to 77.01 million bags.  The USDA's FAS forecasts that 2024/25 ending stocks will fall by -6.6% to a 24-year low of 20.867 million bags from 22.347 million bags in 2023/24.  Separately, the USDA's FAS on November 22 projected Brazil's 2024/25 coffee production at 66.4 MMT, below the USDA's previous forecast of 69.9 MMT.  The USDA's FAS projects Brazil's coffee inventories at 1.2 million bags at the end of the 2024/25 season in June, down -26% y/y.

 

 

 Six reasons for making Clear Lake Coffee Roasters - CLCR - your go-to coffee roaster:


☕️ We are a local family-run business located in the heart of Clear Lake, Iowa.

☕️ We go to great lengths to find only the finest and ethically sourced coffee around, from the top 2% of coffee beans in the world.

☕️ We only source 100% certified Arabica coffee beans, carefully hand-selecting each coffee based on specific quality and taste attributes.

☕️ Our roasting process has been refined over the years and each roast profile is individually designed to complement the nuances of the coffee we source, from Cup of Excellence (COE) award-winning producers.

☕️ By roasting in smaller batches, we can ensure our coffee is ALWAYS fresh, in fact, we roast your coffee only after you place an order - the same day your order ships out.

☕️ At CLCR, we are dedicated to a single mission: the unyielding pursuit of coffee perfection in every cup.

We would give you more reasons, but rather than reading it's better if you visit our website, purchase a bag or two, and experience a unique caffeinated or half-caff journey for yourself 😊!
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