Coffee - Production process, trading, price factors and applications

A coffee bean is the name for a seed of a coffee plant. It is the pit inside the red or purple fruit often referred to as a cherry. Even though they are seeds, they are incorrectly referred to as ‘beans’ because of their resemblance to true beans.


The first coffee bearing trees are found in Ethiopia and may date back to the ninth century. The name coffee is most likely derived from the kingdom of Kaffa in Ethiopia where the plant has its origins. The first recordings of coffee as a drink are dated in the middle of the fifteenth century in Yemen. From here it quickly spread across Arabian countries such as Egypt, Persia, Turkey and north Africa. Through active trading the coffee was introduced to Europe in Italy during the sixteenth century and spread from there across the rest of Europe. At a rapid pace coffee houses started emerging in all cities and town across Europe and the drink became a popular beverage and the coffee houses an important location for social contacts. The production however was still exclusively being controlled by the Arabs until the seventeenth century. At the end of this century the Dutch managed to obtain seeds and could start their own production. Their first attempts to plant the seeds in their colonies in India failed but they were successful in Batavia and Suriname. After the success of the Dutch plantations, the British and the French also started to start up their own coffee plantations in their colonies in the Americas. After the introduction into the various colonies, coffee became one of the most profitable export products of the world.

Production of coffee

Currently the five biggest coffee producing countries are (in order of production size): Brazil, Vietnam, Indonesia, Colombia and India. The production process is divided into a number of steps. During various steps there are different methods based on the desired quality of the coffee beans. Available recourses will also play a role in the selection of a chosen method.

Planting and Harvest

The production is a time and labor intensive process. From the moment of plantation of the first seeds it can take three to four years before a newly planted coffee tree will began bearing fruits. The planting of new coffee trees takes place mainly during the wet season to enable the plants to grow strong roots and be ensured of enough water to grow sturdily. When the fruits, called coffee cherry, turn a bright red color they will be ready to be harvested. This is mostly still performed by hand. Although in countries like Brazil the terrain allows mechanical picking of the beans. There are two different methods of picking coffee beans:

Firstly there is strip picked, in which all cherries are picked at one time form the branch. There is no distinction whether a cherry is fully ripe or not. The advantage of this method is that it can be performed both manual as mechanic, allowing a high harvesting speed. However there will be no distinction in quality between different stages of the ripening process.

The second method is selective picking. This is only done by manual labor, where pickers select only the cherries in the right state of ripening. This results in a much higher quality of beans, but is also much more labor-intensive.


Upon harvesting the coffee cherries, the next step is the processing. This must be done as quickly as possible after the harvest in order to prevent spoilage. There are two methods for the processing of the freshly picked cherries: the so-called dry and wet method.

The dry method is the oldest method and is mostly used in locations where water is limited. During this process the picked cherries are spread out on a surface in order to dry in the sun. They are frequently raked over during the course of the day. Based on weather conditions this step may take several weeks, until they are ready to be stored.

The wet method is basically a process of a number of steps. First the cherries are placed in a pulping machine in order to separate the cherries from other byproducts such as pulp and skin. The remaining beans are then pushed through a water channel where the ripe, heavier beans will drop to the bottom. Next, they are processed through rotating drums in order to separate them by size. Finally they are placed in a water tank for one or two days, where the remaining layer of mucilage is removed from the bean and make it a bit more rough. After these steps the beans will be ready for drying. the beans are dried in either large tumblers or by spreading and turning them like the original dry method. Afterwards the beans will be ready for storage.


The processed beans are now ready for storage. The beans are sorted before they are stored, either by a machine or by hand. The beans are sorted by size and weight and any defected beans are removed from the batch. After the sorting, the beans are collected in sacks of 60 to 70 kilograms. These sacks control the moisture level of the beans and enable producers to store them up to one year.

Applications of coffee

Coffee beans are most commonly used to create the well-known beverage. Although the beans are a commodity, the roasting method of the beans however has created numerous types of coffee. Distinction between coffee beverages is made on roasting method and origin of the bean. These factors have a great impact on the eventual flavor of a cup of coffee. Apart from the original beans, the greatest influence on coffee are the additions to the beverage. These can range from milk, cocoa, various liqueurs, cinnamon and different fruit juices. All these elements may be added to the original coffee to create the flavor experienced at home.


The New York Mercantile Exchange (NYMEX) is the most prominent exchange for trading coffee and its corresponding futures contracts. The prices of the coffee futures contracts on this exchange are a benchmark for other prices around the world.

Price Factors

Similar to the majority of agricultural commodities, the weather is the most important price factor. Adverse weather condition can cause severe damage to the crops. A decreased harvest will cause demand to strongly outweigh the supply, causing a rise in prices.

Limited production countries also influence the prices of coffee. The greatest part of the global coffee supply is being produced by a limited number of countries. This dependability on these major producers can have a huge impact on the prices. In case of instability or political interventions in these producing countries, the global supply can be affected greatly. Fear of governmental influence in the coffee production can therefore cause a sharp rise in coffee prices.

The correlation between the two types of coffee, Robusta and Arabica, is an important factor in the creation of coffee prices. With rising demand for one type, the corresponding price will rise accordingly. The demand for the opposite type will decline and the price for this commodity will decline in a similar fashion. Monitoring both types of coffee can therefore be an important indicator for future prices.

NYMEX Coffee Futures Contract

Coffee (Financial) Futures Contract on the New York Mercantile Exchange (NYMEX) has the following specifications:

Product Symbol KT
Contract Size 37.500 pounds
Price Quotation U.S. Dollars per pound
Contract Months Trading is conducted in the March, May, July, September, and December cycle for the next 23 months.
Tick Size $0.0005 per pound