How to invest in coffee from Canada

By   |   Verified by Andrew Boyd   |   Updated 1st September 2022

  • Coffee, a popular commodity, is the beverage of choice for billions across the globe.
  • The global coffee market is expected to continue growing annually.
  • Coffee investors from Canada can enter the coffee market by investing in shares, ETFs, futures, and options in commodity markets.

As an everyday beverage worldwide, coffee is unlikely to go out of demand.

Scroll down to learn how to invest in shares, funds, futures, and options for exposure to coffee as a Canadian investor.

Benefits of investing in coffee

Investing in things people need daily is a good strategy for hard times. Coffee is a good example of that approach since more than a billion people across the globe get their daily caffeine shot from a cup of coffee.

Unlike most other commodities, coffee investors can get exposure from various instruments related to agriculture, beverages, consumer products, and coffee shop franchises.

Risks of investing in coffee

As a commodity, coffee prices can be highly volatile due to changes in the supply and demand for coffee. Global warming and weather conditions in coffee-producing countries can influence the price of coffee and related investments.

Economic and political instability in coffee-producing countries has also been known to cause coffee’s value to fluctuate.

Fluctuations in foreign currency exchange rates increase the risk of investing in coffee since the top coffee producers are Brazil, Vietnam, Colombia, Indonesia, and Ethiopia. In contrast, the top consumers are the US, Japan, and European countries.

Additionally, changes to trade regulations and the imposition of restrictions and tariffs can pose risks for coffee markets and their growth.

Not sure which investment instrument is best?

Ways to invest in coffee

ETFs

ETFs are financial instruments that help you invest in a bundle of shares or bonds of different companies with one transaction.

Instead of buying shares or bonds of one company, or coffee commodities, you are investing in a fund that invests in several companies.

There are specialist ETFs in equities, bonds, commodities, and commodity futures, enabling you to diversify even the smallest investment.

ETFs invest their money by tracking specific markets. They are similar to index funds, which also track the performance of a market. The difference is in how ETFs are traded and their fees. You can directly trade in ETFs on the stock market, similar to shares or bonds.

Pros

  • Diversification. Each ETF invests in various companies and helps diversify your holdings with one transaction.
  • ETFs are liquid investments since they are tradable on stock exchanges and can be bought and sold anytime. Fund trading is possible just once a day.
  • Flexibility. You can go long on ETFs, sell them short, and buy them on margin. You can also buy and sell options on ETFs.
  • Transparency. You can see what an ETF holds inside its portfolio daily.

Cons

  • You take on a high level of risk. Individual shares come with a level of risk that can impact you if the company performs poorly or the market drops as a whole.
  • Lack of diversification. Investing in individual company shares does not help you diversify your investment portfolio unless you also invest in shares of several other companies in varying industries, which requires more money and research.
  • Time needed for research. Trading in stocks on your own is a time-intensive operation. You need to research and find potential profitability, study financial reports and dividend records, and follow news about the company and its development, as well as what happens in their industry. Speculative investors need to monitor price fluctuations in order to sell at the most advantageous price point.
  • Tax implications. Selling shares at a loss may entitle you to a tax break. But selling shares at a profit may make you liable to pay capital gains tax.
  • Emotional highs and lows. Because stock prices constantly change, it can be an emotional roller coaster.

Futures and options

Futures and options are derivative instruments.

Futures or future contracts are transactions that must be made at a predetermined future date and price. When the expiration date comes, you must buy or sell that underlying asset at the previously agreed price. The typical duration for a futures contract is three months or less.

Future contracts can be used for speculation or to hedge against losses on commodities, stocks, other financial instruments, foreign exchange (currencies), and cryptocurrencies.

Options offer the right to buy or sell something at a set price on a specific date. Options may be exercised by buying or selling the underlying asset at the previously agreed price or left unexercised if that is more profitable.

If you want to trade in futures and options in Canada, find an online broker that suits your needs. Unlike stocks, bonds, and other traditional assets, which offer multiple means of buying and selling, only a few online platforms let retail clients trade in futures and options.

Pros

  • Easy pricing and high liquidity.
  • Risk hedging. Speculate on the future price.
  • Futures and options are traded on margin, which enables investors to control relatively big investment positions against a small initial outlay.

Cons

  • Futures and options are complex derivative instruments. They are not suitable for beginners.
  • High risk. Compared to stocks, bonds, and cash investments, they are riskier.
  • May have significant price fluctuations, which can seriously affect the financial outcome of your trade.

Shares

Coffee equities are another investment option if you want to invest in coffee from Canada.

Some listed companies are dividend-paying. If the company performs well, you can expect a dividend based on your holding. Alternatively, you can expect little or nothing if they make losses. You can also benefit from — or lose out — when share prices fluctuate.

It's easy to trade in shares of public listed companies by opening a trading account with an online broker.

You can opt to own shares directly or to pool your investment with others and buy shares in an investment fund or ETF.

Pros

  • Easy to get started. Easy to buy and sell with a share trading account.
  • Liquidity. Listed shares are a very liquid investment asset.
  • Low fees. Low transaction costs for trading in shares (compared to ETFs).
  • Capital growth. Your investment can grow with the company.
  • Hedge against inflation. Equities can offer you a return higher than the inflation rate. In case yields drop below inflation rates, you can always choose to hold on to your shares.
  • You can begin investing with small amounts. Retail brokers may let you trade up to a limit, commission-free, and may not ask for minimum deposits. Fractional shares open up even more options.
  • Dual income streams. Earn money through dividends and price appreciation.

Cons

  • High level of risk, especially if you invest in individual companies that are not highly diversified. This can be offset by investing in ETFs and funds or diversified stocks with high exposure to coffee, such as Nestle, or in restaurant stocks.
  • Time-consuming research. Being your own stock researcher can be extremely time-intensive.
  • Tax implications can mean tax breaks for selling at a loss and capital gains tax when selling at a profit.
  • It can be an emotional rollercoaster if you track the market closely and aren’t taking a long-term view.

Unsure about what trading platform to use?

Where to invest in coffee

Qtrade Direct Investing™

On Qtrade Direct Investing™'s website

Highlights

  • Almost $500 in commission-free trades. Offer ends on October 31st, 2022. Use the Promo Code 50TRADESFREE to avail of the offer. Conditions apply
  • Low trading commissions, easy-to-use platforms, and a wide selection of investment options.
  • Get transparent and competitive pricing.
  • Exceptional client service.
CIBC Investor's Edge

On CIBC's website

CIBC Investor's Edge

Highlights

  • Free online trading for young investors 18-24 years old. No annual fee, no minimum balance, and $0 per online stock and ETF trade until 30 September 2022. Terms and Conditions apply.
  • Pay a flat fee of only $6.95 per online equity trade, with no minimums.
  • Invest in stocks, ETFs, options, mutual funds, GICs, fixed income and precious metals.
  • Trade confidently with industry-leading research at your fingertips.
Questrade

On Questrade's website

Highlights

  • Low commissions.
  • Fewer fees and transparent pricing.
  • Regulated by IIROC AND CIPF.

Looking for Canada's best stock trading platform? Compare options with Finty.

First time investing?

How to invest in coffee

Step 1: Decide on an investment instrument

Do you want to go for shares or ETFs? If ETFs, do you want to get exposure to coffee futures ETFs or specialist ETFs with exposure to commodities, or beverage, hospitality, agriculture, and farm stocks

Step 2: Choose a broker

You have a wide range of choices if you want to invest in shares, ETFs, or even coffee futures. Fewer platforms are available for those planning to invest in coffee futures and options via CFDs or spread betting, although there is still plenty to choose from.

Factors to consider in choosing a broker

  • Compare trading fees, deposit and withdrawal fees, inactivity fees, monthly account fees, plus fees and subscriptions to access premium features.
  • Minimum deposit required to open an account.
  • Ways to fund your trading account.
  • Minimum trading volumes per period.
  • Whether margin trading is allowed or not.
  • What leverage — if any — is available to trade with.

Step 3: Decide how much to allocate for your coffee investment

  • Remember that there is a certain level of risk when investing, regardless of the asset you choose. You may, at the worst, lose all or part of your invested capital.
  • As a rule of thumb, more complex derivative instruments such as futures and options carry a higher risk level for investors than investing in stocks and ETFs.
  • Because prices can go up and down, it is best only to invest what you can afford to lose.

Step 4: Deposit funds

Check with your broker or platform what funding methods are accepted and the minimum deposit they require.

Depending on the broker or platform, you can add funds with a bank transfer, debit card, credit card, PayPal, or from a digital wallet. You may want to pick a broker that allows the most convenient method for you. How long it takes for deposited funds to clear may vary depending on the method used.

Step 5: Configure an order

Most brokers offer several different ways to configure an order. Market orders require practically no configuration or previous experience and are the easiest and the most common. However, if you have a trading strategy or want to buy at a certain price, you can use a trigger order to enter a trade.

Step 6: Place the order to buy

You can place an order when you are comfortable with your chosen trading instrument and investment strategy and have the funds in your trading account.

Step 7: Monitor your investments

Regardless of what you invest in and whatever instrument you choose, monitoring your investments is a critical step in your investing journey.

Different factors can impact the price of coffee, derivative products, and restaurant chain share prices. As a result, consider what strategy is best to achieve a level of diversification in your overall investment portfolio.

Monitor the factors that impact your coffee investments

  • The International Coffee Organization is a good place to monitor production and consumption, as are the World Bank Group and the US Department of Agriculture websites.
  • Do your own technical analysis of barley price charts to consolidate trends and patterns that will provide guidance on your buy and sell decisions.
  • Some trading platforms offer dashboards with charts and graphs and detailed research on various markets. These may be free or offered at a cost.
  • Consider how you can build and manage your investment position in coffee. Think of how to leverage your coffee assets to take advantage of changing market conditions and the volatility of market prices.

After you invest

What affects the price of coffee

  • The global demand for coffee, related beverages, and consumables:
    • While coffee is an everyday staple, it is also used in beverages and foods that are discretionary items that you’d buy only when there is money to spare.
    • During times of inflation and low economic growth, consumers tend to buy less of these items.
  • Supply factors that affect the price of coffee (as a commodity) include:
    • Climate conditions such as the impact of el Nino reduce production and raise coffee prices.
    • Adverse weather conditions, global warming, and plant diseases can impact top coffee-producing nations.
    • Existing levels of coffee inventories globally will help set off these fluctuations in inventory levels.
    • Supply chain disruptions.
    • The number of countries producing coffee may vary.
    • The investment levels in coffee production and the productivity levels of the key coffee-producing nations.
  • Demand for products of restaurant chains and convenience products (like Starbucks) and coffee-infused beverages and foods can be affected by:
    • Global economic conditions have a strong impact because flourishing economies and low inflation states help people make more money and spend more.
    • Job growth and inflation. You'd visit Starbucks and restaurant chains more if prices are lower, wages are growing, and the economy is doing well. You'd brew your own coffee and make your own food at home if economic conditions are bad or you have lost your job.

Overall, the global demand for coffee is expected to remain strong for the next few years. However, this trend may or may not continue over the long term, depending on supply and demand dynamics.

Commodity prices can fluctuate in unexpected and dramatic ways. Poor economic conditions can turn around and economic conditions can improve.

Either way, an investor needs to be ready with an exit plan and have the necessary funding to change their position, where necessary. This applies to speculative investors who plan to make money from short-term price fluctuations.

Those long-term investors wishing to invest in coffee from Canada can choose dividend-paying food and restaurant stocks or related ETFs to ensure steady returns by way of dividends over the long term, regardless of economic cycles and temporary price movements.