Binary options strategy: Trade coffee with binary options

Coffee is very popular in many homes all around the world. This raw material is consumed daily and isn’t about to become passé. Coffee likely originated in the Ethiopian province of Kaffa in prehistoric times and was the subject of a transfer in the sixth century, from Yemen to the port of Mocha.

Coffee holds the top spot in terms of agricultural raw material trade in the world, and there are two varieties of coffee: Robusta which represents 30% of production, and Arabica which accounts for 70%. However, it’s important to note that the annual production of coffee depends upon climate conditions and harvests over the past 10 years have gone from 100 to 130 million bags of coffee each year.

Coffee producing countries: It’s important to know that three countries account for 50% of the worldwide production of coffee: Brazil (27 million bags), Vietnam, which has recently experienced rapid production growth (14 million bags) and Columbia (11 million bags).

Trading coffee on the financial markets: Arabica is negotiated at the New York Board of Trade (NYBOT) and at the Tokyo Grain Exchange (TGE), and Robusta at the London International Financial Futures and options Exchange (LIFFE) of the NYSE-Euronext as well as in minor volumes at the Tokyo Grain Exchange.

Coffee is negotiated by futures contracts intermediaries and options, and trading volumes are similar on the NYBOT and the LIFFE at around 4 million contracts traded annually. The underlying amounts within each contract at the NYBOT equate to close to 37,000 pounds of Arabica and the LIFFE contracts represent 5 tons of Robusta.

Worldwide coffee commerce: In 1989, coffee quotas were removed which lead to overproduction in the 1990s, and this resulted in price decreases in 2001, around $50 per pound on the NYBOT. After 2001, prices began to increase at a slow pace, as demand from the European Union, the US and Japan generated regular growth of about 2% per year, until reaching $171 per pound on the NYBOT in August 2008.

Coffee prices dropped in the Fall of 2008, along with many other assets. This drop was followed by a price incline as of December 2008 ($2000 per ton of Robusta in February 2009 on the LIFFE, compared to $1600 at the beginning of December the year prior). A reduction in Brazilian production in 2009 explains the changes in this price.

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