Coffee Futures

Coffee has routinely ranked high on the list for the world’s list of largest agricultural exports. In the tropical agricultural category, it is the world’s most vastly traded commodity. Tracing its origins to as early as the 9th century Africa, coffee is believed to have originated in Kaffe, Ethiopia. In the 15th century in Yemen, the production has since expanded to Africa, South America, and Asia. Technically speaking, coffee is not a commodity; it’s formally considered a fresh produce because its value directly relates to the length of time it is held. Despite this technicality, futures contracts for Grade 3 washed Arabicas have been around for decades and are popular with tropicals and softs traders.

Coffee Futures Contract Specifications

Product Symbol

Contract Size

37,500 pounds

Price Quotation

Cents and hundredths of a cent up to two decimal places

Contract Months

March, May, July, September, December

Minimum Fluctuation

5/100 cent/lb., equivalent to $18.75 per contract.

Settlement Procedure

Physical Delivery

Grade/Standards/Quality

A Notice of Certification is issued based on testing the grade of the beans and by cup testing for flavor. The Exchange uses certain coffees to establish the “basis”. Coffees judged better are at a premium; those judged inferior are at a discount.

Daily Price Limit

none

Delivery Growths

Mexico, Salvador, Guatemala, Costa Rica, Nicaragua, Kenya, New Guinea, Panama, Tanzania, Uganda, Honduras, and Peru all at par, Colombia at 200 point premium, Burundi, Venezuela and India at 100 point discount, Rwanda at 300 point discount, and Dominican Republic and Ecuador at 400 point discount. Effective with the March 2013 delivery, the discount for Rwanda will become 100 points, and Brazil will be deliverable at a discount of 900 points.

Delivery Points

Exchange licensed warehouses in the Port of New York District (at par), the Port of New Orleans, the Port of Houston, the Port of Bremen/Hamburg, the Port of Antwerp, the Port of Miami and the Port of Barcelona** (at a discount of 1.25 cents/lb).

First Day Notice

Seven business days prior to first business day of delivery month.

Last Trading Day

One business day prior to last notice day

Last Notice Day

Seven business days prior to the last business day of the delivery month

Trading Hours

	Trading	Pre-Open
NEW YORK:	3:30 AM-2:00 PM 03:30-14:00	8:00 PM 20:00
LONDON:	8:30 AM-7:00 PM 08:30-19:00	1:00 AM 01:00
SINGAPORE:	3:30 PM-2:00 AM 15:30-02:00	8:00 AM 08:00

Source: ICE

Coffee Facts

Brazil is the top producer and exporter for coffee, while the U.S. is the top consumer and importer of coffee.

On average, it takes 3-4 years for a coffee plant to start to bear fruit. When ready to be picked, the fruit, known as the coffee cherry turns a deep shade of red. Coffee is usually harvested by hand or by machine. On a good day, a picker can accumulate up to 200 pounds of coffee cherries. After they are processed, this may yield up to 40 pounds of actual coffee beans. Coffee must be processed very quickly in order to maintain freshness of the cherries. Coffee is processed by two means-a dry or wet method:

The dry method has been around for thousands of years. This involves laying the cherries out in the sun on a flat surface. The cherries are raked and turned frequently so they do not become spoiled. When the moisture content falls below 11%, the dried cherries are transported to warehouses for storage.
The wet method involves removing pulp from the coffee cherry, so that the bean dries while only maintaining its parchment skin. The coffee beans are then separated by weight and placed in fermentation takes with water. They are then ready to be dried.

After beans are dried, they go through several more steps that include milling, hulling, and polishing. They are then graded and sorted by hand and/or machine. Milled beans are called “green coffee” and are acceptable for export. Over seven million tons of green coffee is produced every year to support over 2 billion cups of coffee that are drunk every day.

Sources: CME Group, NCA, ICO

Last updated May 2013