Trading your coffee cup
Trading coffee is not an easy job. In a recent trip to Vietnam, I had the chance to meet a coffee trader and visit his wet mill.
First of all, let’s remember that there are two coffee species traded around the world; coffee arabica which is 60% of the traded coffee, and coffee robusta for the other 40%. Coffee arabica is mostly used for drinks while robusta even though it can be drunk as a low-quality coffee, it is more often transformed into medicines and food products.
Stocks of coffee arabica are traded at the New York stock exchange while for robusta it is traded at the London stock exchange. These platforms are used to exchange coffee futures, which are stocks used by traders to limit their exposure to coffee supply changes and price volatility. Every time, my trader friend buys real coffee from farmers, he sells a coffee future; and every time he sells coffee, he buys a coffee future. Traders make money from the price difference between the value of coffee futures and the price of real coffee.
The biggest difficulty of my friend is that he must always check coffee prices on his phone until 1:30 in the morning in Vietnam, time at which London Stock Exchange closes. Vietnam being the first exporter of coffee Robusta, most of the transaction of my friend happens in London. Once the London Stock Exchange closes, my friend checks the closing price of…
