Commodity Investing: Maximizing Returns through Fundamental Analysis

CHAPTER 16

Coffee

Coffee is the world's premiere caffeine delivery device; 1.6 billion cups are drunk everyday.¹ It provides about 54 percent of the world's total caffeine, followed by tea and soft drinks.² In the United States, 52 percent of the population drinks coffee—down from 1975, when it was consumed by 65 percent of the population.³ In recent decades, coffee has encountered increased competition from soft drinks.

The coffee plant is a woody evergreen shrub or tree that is grown in subtropical and tropical climates. Coffee beans are the seeds of this plant. There are two major types of coffee: Arabica and Robusta. Arabica coffee is generally considered superior to Robusta, which is often described as having a harsh taste.^a In the United States, Robusta is typically used in blends with Arabica and in instant coffee. About two-thirds of world production is Arabica, and one-third Robusta.⁴ The best Arabica coffee is grown in volcanic soil, at altitudes of 2,000 to 6,000 feet, depending on the proximity to the equator. Robusta grows at lower elevations and closer to the equator. From planting, it takes three to five years before the coffee plant begins bearing cherries. This long lead time can create periods of supply–demand imbalance, as farmers plant coffee when prices are high but then do not produce a crop for several years, by which time circumstances may differ.

HISTORY

Coffee originated in East Africa, probably in the region that is today Ethiopia, during the ninth century. ...