Coffee

Coffee

BUY - rate is expected to increase, i.e. the first currency gains value against the second currency.
SELL - rate is expected to go down, i.e. the first currency is expected to lose value against the second currency.

For someone who does not drink coffee at all, this information might be a little difficult to process, but yes, after crude oil, coffee is the most sought-after commodity in the world. The addictive powers of caffeine should apparently never be underestimated.

A soft commodity, coffee is most definitely the foremost source of caffeine in the world. It beats out everything in this regard. Energy drinks, sodas and a number of teas contain caffeine, but nothing can compete with coffee beans.

Coffee production

Climatic factors obviously limit the areas where coffee can be produced, but still, there are some 50 countries on the list of coffee producers. The Americas stand out in this regard. Apparently, around 2/3rds of the world’s coffee is produced there.

The area where coffee grows is defined by the Tropics of Capricorn and Cancer. Only within this belt – also called the Coffee Belt – can coffee be cultivated.

Asia, Africa and the Caribbean are coffee-producing hotspots as well.

There are two main varieties of coffee beans: Arabica and Robusta. Of these, the former are considered to be of superior quality flavor-wise. As such, Arabica tends to trade at a premium compared to Robusta.

While Robusta beans are more bitter, they also contain around 50% more caffeine, so in this regard, Robusta is superior to Arabica.

Coffee beans may be called “beans” but they are in fact the seeds of the coffee cherry/coffee berry. A berry usually contains two such seeds, facing each other with their flat sides.

About 10-15% of coffee berries contain just one seed instead of two. Such seeds are considered to be superior to the common ones, flavor-wise. This may not be more than a myth however, as there has been no scientific proof produced in this regard.

A little bit of history

The first coffee plant was apparently found in the mountains of Yemen, around 1500. There is a legend according to which the discovery was made by a goatherd, named Kaldi.

Cultivation of coffee started in around 1600, in India. The beans were introduced to Europe in 1616.

The Americas got their first taste of coffee in 1723. The first roasted beans were sold in Pittsburgh, in 1865.

What drives the price of coffee?  

– the climatic factors limiting coffee production are obvious and have already been addressed above. Countries cannot become coffee producers simply by choice. They have to be located within the Coffee Belt.

– geopolitical factors are also important. While coffee can hardly be used as an instrument of coercion in international politics, its production can be affected by instability.

– speculation. As mentioned, coffee is a heavily traded commodity, which also means that it lends itself well to speculation.

– demand. Some 50% of the world’s coffee production is bought up by four roasting companies, known in the business as the “Big Four”. These companies are Nestle, Sara Lee, Kraft and P&G. For a commodity as sought-after and traded as coffee, this is a remarkable degree of centralization.

BUY - rate is expected to increase, i.e. the first currency gains value against the second currency.
SELL - rate is expected to go down, i.e. the first currency is expected to lose value against the second currency.

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