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Why investing in coffee could invigorate your portfolio


The global battle over humanity’s 2nd most traded resource after oil, coffee, continues to heat up as Coca-Cola announced its bid to purchase huge, European coffee chain, Costa Coffee, for $5.05 billion. This comes a year after Nestle's purchase of Blue Bottle Coffee from San Francisco for $500 million^1. These two conglomerates, after Starbucks, now compete in the $80 billion coffee market.

There's a lot I can say about coffee. Just about nothing makes me happier than being able to dip my croissant in a cappuccino laced in chocolate or cinnamon. The experience sets my mood for the day and allows for some work to get done in the moment. The coffee market knows this and now competition seems to be picking up, as Coca-Cola set a 20% premium in their bid over the market value of Costa Coffee.^2

With an already limited resource due to corporate acquisition and competition, climate change is another reason why the price of coffee could go up. An international body theorizes that coffee yields could drop 20% by 2050^3 due to climate change all the while coffee demand continues to grow at 5% a year. There are also labor shortages in Latin America. As coffee farmers age, their children are seeking higher-paying opportunities elsewhere.

You may want to consume coffee in other ways, such as purchasing the related stock or commodity. Coffee futures are the means in which large corporations guarantee their prices as they purchase beans in a rapidly fluctuating market. The illustration below shows the multi-year price for Coffee futures to be at a major low. The bottom graph, however, shows the highest demand for hedging against increasing prices yet.

Coffee futures multi-year chart

At Eureka Wealth Management, I keep my clients in-tune with the latest in commodity trends and strategies to trade them. I also provide insight on retirement, insurance, tax and estate strategies. Call for a free, initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.

Sources:

^1 https://www.businessinsider.com/nestl-acquires-blue-bottle-700-million-valuation-2017-9

^2 Financial Times: “Coke’s move for Costa perks up Whitebread” dtd 9/1/18.

^3 https://www.perfectdailygrind.com/2017/05/main-challenges-faced-coffee-producers/#climatechange