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If you’re an average American adult, I bet you drank a cup of coffee this morning.
It’s a bet I’d be willing to make because the odds are firmly in my favor. The statistics surrounding coffee consumption in the U.S. are staggering.
- Almost 2 out of 3 American adults drink coffee every day.
- More than 150 million Americans drink more than 400 million cups of coffee per day. That adds up to over 140 billion cups per year.
- The average American coffee drinker drinks 3.1 cups of coffee per day.
As author Michael Pollan observes, for most of us, “to be caffeinated to one degree or another has simply become baseline human consciousness.”
But if you are a coffee drinker, I have some bad news for you: Your coffee habit is about to get a lot more expensive.
That’s because coffee prices are soaring.
Recently, futures prices for Arabica beans hit $2.50. That’s a 10-year high – and almost double their level at the start of 2021.
But I have some good news as well.
But let’s start first with…
A Brief History of Coffee
Six centuries ago, coffee was just an obscure berry from the highlands of Ethiopia.
But once the coffee was brewed, its benefits became well known, and coffee became a hotly traded (and grown) item around the world. In 1511, religious leaders in Mecca banned it altogether, suspicious of coffee’s intoxicating effects. A century later, coffeehouses had spread across the Ottoman Empire, introducing the beverage to Europe.
At first, Europeans were unimpressed.
In 1610, the British poet George Sandys described coffee as “blacke as soote, and tasting not much unlike it.”
Amsterdam – the world’s leading hub of international trade at the time – became one of the first places coffeehouses opened in Europe. Other commercial centers like Venice quickly followed.
The first coffeehouse in England opened in Oxford in 1652. Within a few decades, London boasted hundreds of coffeehouses. At their peak, there was one coffeehouse for every 200 Londoners.
When Benjamin Franklin came to London in 1757, he was nicknamed the “Water American.” This is because Franklin did not drink the low-alcohol beer that kept most Londoners in a perpetual alcoholic stupor.
As court historian James Howell wrote in 1657, morning drafts of ale rendered apprentices and clerks “unfit for business.”
In contrast, coffee – a “wakefull and civil drink” – helped them “play the good-fellows.”
Coffee made a day’s work possible. Some historians argue that coffee indirectly fueled the ensuing scientific and financial revolutions.
The History of Coffee in the United States
Coffee imports to the U.S. doubled every decade between 1800 and 1850. The widespread availability of cheap coffee helped ensure the U.S. would become a nation of coffee drinkers.
During the Civil War, the average Union soldier drank five cups of coffee a day. By the turn of the 20th century, consumption per person in the United States was 10 times that of Italy.
Scientific findings also boosted the culture of coffee.
In the 1920s, Samuel Prescott, an MIT biology professor, found caffeine increased the body’s capacity for muscle or cognitive work within 15 minutes of consumption. Coffee was a miraculous form of instant energy.
Investing in Coffee
All this brings us to the boom in coffee prices today.
Why is the price of coffee soaring?
Blame the always reliable law of supply and demand.
First, shipping bottlenecks in the two largest exporters, Brazil and Vietnam, are leading to supply shortages. The Coffee Exporters Council of Brazil said traders were struggling to secure containers. As a result, coffee export volumes in October had fallen 24% compared with last year’s.
Second, coffee farmers in Brazil were hit by the worst drought in a century. Then came severe frosts in July. Finally, the arrival of La Niña in South America further hindered production.
Third, with soaring prices, speculative demand for coffee has exploded. All players along the coffee supply chain are looking to cash in on coffee’s surge. The major roasting companies are buying up coffee stocks wherever they can. Farmers are failing to deliver coffee at agreed-upon prices as they attempt to resell stocks at current higher prices.
The bottom line?
There’s little doubt your daily cup of coffee will be costing you more in the coming months.
The good news is you can cash in on the boom by investing in the price of coffee directly.
And the best way you can do that is through an ETN called the iPath Series B Bloomberg Coffee Subindex Total Return ETN (NYSE: JO). It tracks the performance of the Bloomberg Coffee Subindex by holding coffee futures contracts in the most nearby month.
The iPath Coffee ETN’s expense ratio is 0.45%. It is the largest and most liquid coffee ETN, with total assets of $88 million.
The fund has been one of the top performers in the commodities space in 2021 and is up about 75% year to date.
Click here to watch Nicholas’ latest video update.