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Sucden is a leading futures and options broker for coffee, operating in both the London and New York markets, primarily specialising in servicing the requirements of our trade clients. Sucden works in close partnership with its clients, including coffee producers, dealers, roasters and provides them with a dedicated team of experienced traders.
Our Offering:
Research and market analysis: we provide a valuable insight into the daily market activity in the futures markets through the use of daily charts and reports. These assist in accurately analysing the expectations for future market trends.
- Expert advice: through our team head - Ralph Hawes - a qualified Liffe Robusta grader, Sucden can grade physical coffee for delivery to the London and New York markets and offer advice and analysis of the potential suitability of specific samples.
- International scope: our coffee team works alongside desks responsible for trading other agricultural commodities including cocoa and sugar and is therefore able to service clients in Spanish, French, German, Portuguese and Russian.
- Specialist servicing: through our specialist desks Sucden offers an invaluable and unique service to the professional trader. Moreover, as a result of being a dedicated commodity brokerage company, we are well positioned to understand our clients' needs.
The Coffee Desk is made up of a team of highly skilled and seasoned professionals who take great pride in delivering a service that not only meets client needs, but also exceeds their expectations.
BACKGROUND TO THE COFFEE MARKET
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History and origins
Coffee is one of the most significant of all traded commodities in the world. In terms of value, it stands second only to oil. Around 3 AD. ground beans were used for seasoning food by the Kaffa tribe of Ethiopia and there is even evidence to suggest that coffee trees were being cultivated about 1000 years ago. The first shipment of coffee was made from Turkey to Brazil in 1615. After water, coffee has now become the most popular drink, with an estimated 400 billion cups being consumed annually.
Production
Coffee is produced by over 40 different countries, many of whom are very dependent on income earned by exports. There are two primary types of coffee - Arabica and Robusta. Two of the less significant varieties are Liberica and Excelsa. Arabica is the more widely produced of the two and accounts for about 70% of total production. It grows mostly at high altitudes - 600 to 2000 metres, with Brazil and Colombia being the largest producers. Robusta, the stronger of the two types, is grown at lower altitudes - mainly in Vietnam, Brazil, Indonesia and Africa. Coffee beans are the seeds within the fruit of the coffee tree, called cherries.
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Once picked, cherries can be either wet or dry processed. Dry processing involves allowing the fruit to dry on the ground for a period of two or three weeks before being husked to isolate the seed, or bean. Wet processing is done by soaking the cherry until the outer layer can be removed. As with most commodities, the two most important factors affecting prices are weather and government policies. Coffee is very susceptible to frosts, and while in general rainfall of 1500 - 3000 mm annually is required, this needs to be in a pattern of wet and dry periods.
Consumption
The USA is the largest consumer of all the coffee importing countries, despite a decline in per capita consumption over the last 30 years or so. Other large importing consumers are Japan, Europe and Scandinavia. The consumption of coffee is fairly inelastic, in that a change in price translates into a relatively small change in the quantity consumed. Occasionally, when the price increase in coffee is dramatic (for example due to world shortages), one can observe shifts in consumption to substitute beverages, like soft drinks.
Coffee trading
Coffee is generally traded in bags of 60kg, of which there are approximately 110 million produced in one year. From 1962 to 1989, the International Coffee Organisation controlled export quotas which were linked to an agreed price range, in an attempt to stabilise prices and production. With the demise of the ICO export quotas agreement, the Association of Coffee Producing Countries established an Export Programme. This was designed to regulate supply but had only limited success and fell into disuse in the 1990s. A wholly free market now exists.
Futures trading
There are two main futures markets for coffee:
- Liffe operates the Robusta coffee futures market, which in November 2000 moved from being traded by open outcry to the LIFFE CONNECT® trading system.
- ICE Futures U.S. lists a futures contract on Arabica coffee.
Performance on the futures contracts are guaranteed by the Commodity Futures Clearing Corporation of New York and the London Clearing House Clearnet (LCH Clearnet) respectively. The volume of contracts traded at Liffe equates to more than five times the total world coffee production. The users of the futures contracts are mainly coffee growers/exporters; trade houses; roasters, who purchase the green coffee and roast it; and speculators/funds. The coffee futures market has long been a favourite of small and large speculators and hedge funds. |
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