Soft commodity prices

Cocoa futures contract

Cocoa originated in South America and requires hot rainy equatorial conditions to grow. Now it is primarily grown and exported from the Ivory Coast, Ghana and Indonesia. Cocoa is the main ingredient in chocolate. It is traded on the ELCM (NYSE Euronext LIFFE Commodities Market) and ICE (the Intercontinental exchange). 

Why are soft commodities important to investors

The price of soft commodities like sugar, cocoa, coffee and orange juice can have a direct impact upon the profit margins of importers, distributors, food retailers, restaurants and food producers. Likewise the cost of cotton will affect a wide spectrum of industrial processes, not to mention clothing retailers and manufacturers. The cost of these goods can affect reported profits and market confidence which will influence their respective share prices.

Online trading technology has made softs accessible to a wider group of institutional and private investors, as well as traditional industries hedging against price changes.

Robusta coffee future

Robusta Coffee accounts for 40% of the world coffee production even though it is cheaper and easier to grow than the Arabica which accounts for the other 60%. It is traded on ICE Euornext Liffe ELCM and the Brazilian BMF commodities exchange.

Arabica Coffee Futures

Arabica coffee accounts for 60% of the worlds coffee production even though it is far more difficult to grow and commands a higher price.

Euronext Liffe white sugar future

The majority of sugar is produced in South America, with Brazil producing around 36 million tons a year. It is traded in the US on the Intercontinental Exchange, in the EU on Euronext Liffe, and in Japan on TOCOM.

The price of sugar can be affected by a variety of factors, which can go far beyond the food and agricultural industries.

Countries that produce sugar often subsidise its price;  they may also impose import restrictions to protect its sugar reliant industries from cheap imports. Almost 70% of all sugar produced is sold inside the country of its origin.

Sugar is also a source of commercially retrievable ethanol. This means that oil prices can influence sugar prices.

Sugar trading month are January, March, May, July and October. 

TOCOM Sugar Futures Contract

Cotton future

The price of cotton can affect a broad range of industries from food and farming through to textile and clothing. An interesting side effect of fluctuations in the price of cotton is how it can affect demand for cheaper synthetic fibre alternatives.

China and the US are the two major producers and exporters of cotton. Over 60% of total cotton production goes to clothing production and 25% to 30% is in domestic home furnishing.

Cotton is traded on NYMEX part of the CME. Its trading months are March, May, July, October and December.

Crops as a viable investment

Soft commodities are farmed crops such as:

Frozen concentrated orange juice 

They are seasonal commodities requiring specific environmental conditions often tying their production to certain geographical locations. Crops like coffee and cocoa are often referred to as 'tropical commodities'.

The futures market for softs offers an important tool for businesses and industries reliant on these crops, allowing them to hedge themselves against crop failure or unexpected levels of demand that can cause huge price swings.

Agricultural farming industries
Food producers

are exposed to these commodity prices. The share price of these companies can be affected by changes in the soft commodities prices.

Softs are traded on:

TOCOM the Tokyo Commodity Exchange:

NYSE Euronext:
Cocoa, Coffee and White Sugar

ICE Exchange:
Cocoa, Canola, Coffee, Cotton, Orange Juice, Sugar. 

BMF the Bazilian Commodities Exchange:
Sugar, Coffee, Cocoa


BMF Brazilian Commodities 
Coffee Arabica BMF

Cocoa ELCM
Coffee ELCM
White Sugar ELCM

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