What is Coffee?
Coffee is the is a seed grown from a plant called Coffea. This plant is native to the subtropical regions of Africa and some parts of southern Asia.
Uses of Coffee
The main use for coffee is from the bean being roasted and used in a hot beverage often mixed with other ingredients. Coffee is also used as a stimulant as it contains caffeine which has also been found to be addictive. Coffee is one of the most traded commodities around the world often used to help countries in free trade agreements.
Risks of Coffee
Like any futures contract there is always the possibility that the underlying asset i.e. coffee will move in the opposite direction to which you hold your contract. For example: you have taken a long position (expecting the price of coffee to rise), if this were to happen and the coffee fell in price, your long position in coffee will decrease in value.
Cultivation risks associated with growing coffee trees such as:
- Low rain falls
- Solar radiation
All these factors can affect the level of output a plantation is able to produce coffee beans which will affect the price of the coffee.