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While coffee gets more popular with a younger demographic, rising bean prices are making investors jittery.

Coffee endures as the unrivalled productivity-enhancing drink around the globe, with an estimated consumption of nearly three billion cups a day and annual revenues of US$468b. Its growing popularity among Gen Z spurs global coffee production, and owes a lot to online trends such as #coffeetok – where aficionados share recipes and brewing tips on TikTok. The average age for starting to drink coffee has dropped to 15 in the U.S.

That coffee market’s so-called fourth wave is characterised by a focus on at-home speciality beverages. Pod machines like Nespresso ($NSRGY), though not fancy per se, have been all the rage in recent years: up to one third of Americans who work remotely own one. Coffee lovers are also turning more and more to cold brews at home, with sector heavyweights like Keurig ($KDP) betting big on iced coffee devices.

But if this bean sounds like a sure bet, investors are actually on high alert. That’s because coffee prices are soaring, mainly due to heatwaves in Vietnam and Indonesia – two of the top five coffee producing countries. As a result, coffee futures contracts on the Intercontinental Exchange are up more than 15% year-to-date.

The rising price puts pressure on coffee shops, such as those operated by Starbucks ($SBUX), Krispy Kreme ($DNUT) and Luckin Coffee; it’s difficult for these businesses to quickly pass down the higher costs to customers. But while that sector suffers, another one is thriving: commodity trading advisors (CTAs). 

These hedge funds, which take long or short positions across different assets, have been piling into coffee futures contracts and reaping the rewards. The Société Générale Trend Index, a long-established benchmark for the CTA industry, is up more than 13% this year alone (thanks also in no small part to the soaring price of cocoa). 

The only publicly-listed CTA fund to have disclosed a position in coffee, First Trust Managed Futures ($FMF), is showing positive returns this year too. Its counterpart, the iMGP DBi Managed Futures Strategy ETF ($DBMF) – the publicly-listed CTA with the biggest positive cash inflow in 2024 – has so far apparently refrained from jumping on the coffee bandwagon. 

For anyone watching these movements too closely, a recent study says that drinking 2-3 coffee cups every day can actually lower your chances of suffering anxiety. Worth a shot.


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