Did you know that coffee has become the second most traded product in the whole wide world right after crude oil?
This fascinating product has integrated itself so deeply into our lives that some of us can’t even seem to start our days without it.
Available on every street corner, the global demand for coffee seems to be rising continually. And investing in a product like this can be quite beneficial.
If you’re thinking about investing in coffee stocks you’ve come to the right place!
We’ve come up with a small guide that’ll tell you all you need to know about investing in coffee stocks. So, without further ado, let’s get into it:
Why Should You Invest in Coffee Stocks?
Caffeine can be highly addictive and unless our world order faces an extreme change, it seems highly unlikely that the demand for coffee will ever go down. This is exactly why investors love this product.
Furthermore, it's irresistible and forms a habit and has some key health benefits such as lowering the chances of getting type 2 diabetes, heart disease, liver, and endometrial cancers.
Within this vast coffee industry, you'll come across companies that make products that are considered to be consumer staples. However, you'll also find companies that make nonessential products as well.
For instance, supermarket coffee beans and instant coffee are consumer staples, but coffee shops and any coffee-related non-essentials fall under consumer discretionary commodities.
That's why investing in coffee stocks is a good idea. But, if you're not convinced, here's a list of reasons why you should:
1) Protection Against Inflation
When money loses value over time, that's what is known as inflation. Every country faces this issue and they have their own inflation rates and targets to meet.
Fortunately, there's a way to protect yourself from inflation – by investing in products like coffee. Because when inflation rises, the value of agricultural products will also rise too.
2) Safety Nets
When you have money spread across different investments, it helps to make your portfolio more diverse. But when it comes to investing in products, that requires a bit of a dissimilar approach.
Coffee is a very basic product and is able to withstand disasters in the market. Having stocks of a company that sells an essential product such as coffee in your portfolio can be a safety net when your other investments aren't doing well.
3) Speculators Are Drawn to It
For those who are unaware, speculators are considered to be sophisticated investors who buy assets only for a short period of time. They come up with strategies that will help them profit from short-term changes in the prices.
In any market, speculators are highly regarded as they're capable of not only bringing liquidity, but they're also very good at assuming market risks as well.
Coffee is one of the leading products in the world and it surprisingly has a stable market. Which easily attracts speculators to invest in it just so they can speculate on the price.
If the demand for coffee ever fluctuates, the speculators will be the first to notice and jump ship, so you'll know what to do too!
4) High in Demand
At this point in time, it doesn't seem like the market for coffee will stop growing any time soon. In fact, it's actually expected to grow by 7% every year till 2025.
Fast-growing economies like India and China are also experiencing significant growth in coffee drinkers. And investing in it is an excellent way to take advantage of its ever-growing demand; somewhat like investing in real estate in a booming market.
How to Invest in Coffee Stocks
So, now that you know why you should invest in Coffee, let's now focus on how you can get started.
Here's a list of steps explaining what you have to do before you start making any investments in coffee stocks:
Having Plans and Strategies
The first step is to come up with a plan and figure out what kind of strategy you'll be using. You should also decide whether you want to be an active or a passive investor.
Moreover, find out how much you're willing to risk as that will tell you a lot about how you'll be investing. Once you've done all these, it's time to move on to the next step!
Setting a Budget
Whenever you're investing, keep in mind that you should only invest in what you can risk losing. This goes without saying, but this is where setting a budget is crucial. And if you manage to stick to it before investing then that's great.
Long Term and Short Term
It's also vital to have either a long or short-term plan.
If you're looking to speculate on short-term demands or trends, then consider taking a look into futures contracts. On the other hand, for a long-term plan, an investment instrument like ETFs seems like the better choice.
Determine an Investment Platform
Brokers offer a number of different services for their clients, so it's a great idea to check with yours and see if they'll allow you to invest in coffee stocks or not.
4 Ways You Can Invest in Coffee Stocks
Investing in anything is a complicated process, including coffee. There are a lot of factors that can decide what the best approach for you would be.
Here's a list of 4 ways you can invest in coffee:
a) Invest in Coffee Stocks
Yes, buying shares in coffee stocks is a great way to get some exposure in this giant industry.
Several coffee companies are listed in the stock market and they can range from famous brands like Starbucks to agricultural coffee like bean farmers.
Normally, the price of coffee stocks will correspond with the company’s financial prospects.
b) Coffee ETFs
Probably one of the easiest ways to get involved for beginners in the Coffee industry is by purchasing shares in exchange-traded funds, aka ETFs.
ETFs can track the performance of a certain industry and there are some that cater to the coffee industry as well. This is a great way to start your investment in the Coffee industry!
c) Invest in Mutual Funds
Somewhat similar to ETFs, you also have the option to buy shares in a mutual fund. But mutual funds are managed by a fund manager who is in control of what the fund buys and sells.
As of now, there are currently no coffee-based funds; but it's still possible to invest in funds that hold a few coffee companies.
This is another excellent way you can gain some exposure in the stock market world and widen your net.
d) Coffee Futures Contracts
Considered to be the most common way to speculate on short-term price fluctuations, coffee futures is an agreement that lets you make a trade at a future date for a pre-decided price.
Investing through this method can be difficult as it requires someone with an ample amount of experience in trading.
Investing via futures is a difficult task and is most suited to someone with experience in trading. Coffee futures contracts also must have a detailed understanding of what can impact short-term prices.
Things to Consider Before Investing in the Coffee Market
Finally, we approach our last segment. There are a lot of distinct factors that can affect the supply and demand of coffee.
To understand them better we've come up with a list of things you should consider before you invest in the coffee industry:
Weather Plays a Big Role
Drastic heat or rain can play a significant role in how coffee beans are cropped. Weather can also directly impact the price of coffee as well. This can lead coffee bean farms to produce lower crop yields, which can quickly lead to a massive rise in prices.
As the weather can play a huge role in this industry, it'd be smart to keep an eye on the companies you're investing in.
Political Instability Affects
Most of the world's coffee is grown in regions that tend to have political unrest from time to time like Africa or South America. Most plantations have faced problems with their governments in the past. This can affect coffee exports and impact its global price.
That's why it helps to do your research well and keep an eye on what's going on to stay ahead of any drastic changes in the coffee market.
Watch Out for Those Exchange Rates
The US dollar and the British pound play a vital role in determining the price of coffee. Those who are buying coffee using a different currency will need to keep a close eye on the exchange rates as a fall in either can lead to having an impact on its price.
Environmental Issues
When it comes to coffee farms, farmers are always looking out for the best place to grow their crops. But what's around them can affect their yields very easily.
For instance, there was a bleak period in 2019 when South American farmers had to see their crop yields drop by over 35% when they discovered fungus had begun to grow on the coffee leaves. Environmental issues like this can greatly affect the supply and demand of coffee, so watch out!
Final Thoughts
In conclusion, we'd like to say that we hope you gained some insights into what investing in coffee stocks can be like in practice. It can be difficult and overwhelming in the beginning, but you can master it with dedicated effort.
Factors such as exchange rates, drastic weather, and political unrest can play a big role in how lucrative investing in coffee stocks can be at any given time. So, do bear them in mind and go on investing!
