What are coffee futures?
Coffee futures are exchange-traded contracts on the Intercontinental Exchange (ICE). Coffee is considered an agricultural or soft commodity and while it is one of the most frequently traded commodities, coffee futures can be prone to extreme volatility. The beverage produced from the cherries on coffee plants is a primary source of caffeine in diets in both emerging and developed countries. The coffee futures contract traded on the ICE is considered the world benchmark for Arabica coffee, grown primarily in Brazil as one of its profitable exports. The E.U., U.S., Japan, and Russia are coffee's largest importers.
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Coffee futures trade on the ICE, with a contract size of 37,500 pounds (approximately 250 bags). An account approved to trade futures is required in order to trade coffee futures.
Coffee futures contract specifications
Considering trading coffee futures? Here are the coffee futures contract specifications.
|Exchange||Intercontinental Exchange, KC|
|Contract Size||37,500 pounds|
|Minimum Tick Size and Value||0.05, worth $18.75 per contract.|
|Trading Times||Coffee futures trade electronically on the ICE platform from 4:15 a.m. U.S. ET to 1:30 p.m. U.S. ET.|
|Principal Trading Months||Primary trading months for coffee futures and options are March, May, July, September, and December.|
At Schwab, you also get access to advanced trading platforms and education, where you can take advantage of market research, real-time coffee futures quotes, and other specialized tools.
Why trade coffee futures?
Investors can use softs like coffee futures to hedge or diversify their portfolio using investments that have a low correlation with their financial assets.
Traders can use coffee futures to speculate on the price of coffee, which can be influenced by a number of changes related to where it's produced. Changes to the producing countries' geopolitical environments, weather and climate trends, and even the price of oil used in export shipping can all affect the price of coffee. Additionally, coffee demand can fluctuate depending on changes within the importing countries, for example rising discretionary income of emerging market consumers or trending views of coffee consumption as a health risk.
It is important to understand the benefits and risks involved with coffee futures before placing a futures trade. Compared to traditional investments, with coffee futures you can trade outside of the traditional market hours associated with equities and take advantage of trading opportunities regardless of market direction. Coffee futures also provide the ability to trade with greater leverage and allow a more efficient use of trading capital. However, trading leveraged products like coffee futures also involves the risk that losses can exceed the amount originally invested and may not be suitable for all investors.
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