Coffee Futures

Market

Coffee futures are part of the softs commodities markets, and are based on coffee production in primary regions. Most production is dominated by countries such as Brazil, Vietnam, Indonesia and Colombia. India, Guatemala, Ethiopia and Mexico are also major producers.

History

Coffee was originally discovered in Ethiopia more than 2,000 years ago. From Africa, coffee found its way to the Middle East and into coffee houses, which gave coffee its exposure to many travelers. The two most commonly grown species of the coffee plant are Coffea Canephora and C. Arabica, which are cultivated in Latin America, Southeast Asia, and Africa. Arabica coffee is by far the most popular variety.

The largest consumers of the commodity are in the Netherlands, Finland, and Sweden, with the U.S. far down the list at No. 15. World coffee exports amounted to 8.85 million bags in December 2014, compared with 8.83 million bags in December 2013, according to the International Coffee Organization.

The price of coffee has been extraordinarily volatile over the years, both in current- and constant-dollar terms. It is subject to supply disruptions such as freezes in the Brazilian highlands, and to new exporters buying market share via lower prices

Facts

  • Brazil is the biggest producer and exporter of coffee in the world, with 33 percent of total production from September 2010 to August 2011
  • The word “coffee” is believed to be come from Kaffe, Ethiopia, where coffee originated in the 9th century.
  • Derived from the coffee bean, it was not well-received, and at one time was even banned in Turkey and Egypt.
  • The demand for coffee gradually increased until it has become one of the most popular beverages in the world.

Trading

  • Coffee futures have traded in New York since 1882, first on the New York Cocoa Exchange (later part of the Coffee, Cocoa and Sugar Exchange), then on the NYBOT and now on ICE and NYMEX.
  • U.S. Options on coffee futures were introduced in 1986
  • The futures are traded in cents per pound. One contract of coffee controls 37,500 pounds of coffee. When the price of coffee is trading at $1/pound, the cash value of that contract will be $37,500 ($1.00 x 37,500 = $37,500).
  • Coffee futures are one of the larger commodities contracts in dollar terms, and therefore, little movements have a big impact on price. The commodities have one of the larger daily ranges of all the softs, making it a very volatile commodity.

You can learn more about Soft futures by downloading our guide, Free Fundamentals of Trading Soft Futures.

 

Contract Specifications  

Contract SymbolContract UnitPrice Quotation
IKC37,500 lbscents per pound
Trading ExchangeTrading HoursTick Value
ICE4:15 - 13:30 (NY)$0.05/lb = $18.75

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This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.