Coffee Sep '19 (KCU19)
|Contract||Coffee C Arabica|
|Tick Size||0.05 cents per pound ($18.75 per contract)|
|Contract Size||37,500 pounds (approximately 250 bags)|
|Trading Months||Mar, May, Jul, Sep, Dec (H, K, N, U, Z)|
|Trading Hours||3:15a.m. - 12:30p.m. (Settles 12:25p.m.) CST|
|Value of One Futures Unit||$375|
|Value of One Options Unit||$375|
|Last Trading Day||Eight business days prior to last business day of delivery month|
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. It is actually 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 areas 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 5 years old and then be productive for about 15 years. The average coffee tree produces enough beans to make about 1 to 1 Â½ pounds 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 the 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 mostly 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.
Very low prices for coffee can create serious long-term problems for coffee producers. When prices fall below the costs of production, there is little or no 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 what are the winter months in Brazil. A major freeze in Brazil occurs roughly every five years on average.
Coffee futures are traded at the Intercontinental Exchange (ICE), the Bolsa de Mercadorias & Futuros (BM&F), the Tokyo Grain Exchange (TGE), and the London International Financial Futures and Options Exchange (LIFFE).
Prices - ICE Arabica coffee futures prices (Barchart.com symbol KC) posted the high for 2018 in January at 131.35 cents per pound on signs of smaller supplies after CeCafe reported Brazil 2017 green coffee exports fell -10% to 27.3 mln bags, a 5-year low, and after the International Coffee Organization (ICO) reported that global coffee exports for the first two months of the 2017/18 crop year (Oct-Nov) were down -11% yr/yr at 17.62 mln bags. Coffee prices then ratcheted lower into September and posted a 13-year low of 92.00 cents per pound on the prospects for robust global production and abundant supplies. Conab projected that Brazil's 2018 coffee production would climb +37% yr/yr to a record 61.7 mln bags since the crop was in the higher-yielding half of its biennial cycle. In addition, the USDA forecasted that global 2018/19 coffee production would climb +7.1% yr/yr to a record 171.166 mln bags and that global 2018/19 coffee ending stocks would increase by +11.6% to a 3-year high of 32.812 mln bags. A plunge in the Brazilian real to a 3-1/4 low against the dollar in September further exacerbated the downside in coffee prices since the weak real provided incentive to Brazil's coffee producers to boost more-profitable exports that are priced in dollars. ICO reported that global 2017/18 coffee exports rose +2% yr/yr to 121.9 mln bags and that ICE-monitored coffee inventories climbed to a 4-1/2 year high of 2.463 mln bags in December. Prices recovered into year-end but still finished 2018 down -19.3% yr/yr at 101.85 cents per pound.
Supply - World coffee production of green coffee in the 2018/19 marketing year (July-June) is forecasted to rise +9.8% yr/yr to 174.493 million bags (1 bag equals 60 kilograms or 132.3 pounds), to a new record high. Coffee ending stocks in the 2018/19 marketing year are forecasted to rise +23.7% yr/yr to 37.056 million bags. Brazil is forecasted to be the world's largest coffee producer by far with 63.4 million bags of production in 2018/19, which is 38.0% of total world production. Other key producers include Vietnam with 17.0% of the world's production Columbia with 8.0%, and Indonesia with 6.0%. Brazil's coffee production in 2018/19 is forecasted to rise +24.6% yr/yr to 63.400 million bags. Vietnam has become a major coffee producer in recent years, expected to boost its production to a record 30.400 million bags in 2018/19, up from less than a million bags in 1990.
Demand - U.S. coffee consumption in 2018 fell -2.8% yr/yr to 27.138 million bags, down from last year's record high of 27.921.
Trade - World coffee exports in 2018/19 are forecasted to rise +4.2% yr/yr to 136.737 million bags, a new record high. The world's largest exporters of coffee in 2018/19 are forecasted to be Brazil with 25.8% of world exports, Vietnam with 20.6%, and Columbia with 9.7%. U.S. coffee imports in 2017 rose +1.5% yr/yr to 27.921 million bags, a new record high. The key countries from which the U.S. imported coffee in 2017 were Brazil with 22.3% of U.S. imports, Columbia with 20.8%, Mexico with 4.7%, and Guatemala with 4.6%.
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