Whenever China hungers for something, markets tend to move.
So it pays to keep an eye on what China is buying more (or less) of.
For example, in the early 2000s, China was building lots of roads, highways and bridges. The price of the inputs of that infrastructure fostered the longest-running natural resources boom in history.
Iron ore prices, for instance, nearly tripled between January 2006 and March 2008.
Then, in 2009, China overtook the U.S. as the world’s largest market for automobiles. Four years later, China surpassed the U.S. to become the world’s largest importer of oil. That helped oil prices more than double between 2009 and 2013.
Now, China is driving another commodity boom – in coffee.
See this image?
I snapped it while passing through the Philippines recently.
But it’s no vacation ‘happy snap’.
These red arrows mark a $26 trillion global opportunity.
One that’s just getting started – and that could potentially make you six times richer by the time it all plays out.
Chinese love Starbucks
China is rapidly becoming one of the world’s largest consumers of coffee, as its millennials flock to coffeehouses instead of tea parlors.
You can see China’s newfound infatuation with coffee by the success of U.S.-branded coffee chain Starbucks (Exchange: New York; ticker: SBUX), which entered China in January 1999 with its first store in Beijing.
Today, there are over 3,300 Starbucks coffee shops in China, making it the company’s second-largest market next to the U.S.
That means the company’s been opening new stores in China at a rate of one every two days for the past 19 years.
These are popping up all over China
A Starbucks store at the Beijing Capital International Airport
In the massive Beijing Capital International Airport, where I arrived in China last December, there was a Starbucks in almost every concourse.
But Starbucks is far from done expanding.
Starbucks sees so much potential for the Chinese coffee market that it’s aiming to have 6,000 stores in China by 2021. That’s 900 new stores a year… or five stores every other day.
Homegrown competitor Luckin Coffee has about 2,000 stores in China. But it’s catching up fast – opening 2,500 new stores this year alone, which is nearly three times the rate of Starbucks’ ongoing expansion.
China’s presence in coffee will soon be felt
China’s per capita consumption of coffee is still one of the lowest in the world.
Chinese drink just five cups of coffee per person each year. That’s nothing compared to its Asian counterparts Japan and Korea, where people drink an average of 360 and 140 cups of coffee each year, respectively. (In the U.S., it’s 510 cups per year.)
The world’s largest coffee consuming nation is Finland, where people drink an average of 1,459 cups of coffee each year. That’s nearly four cups a day – enough to keep most people up all night.
But China is catching up very fast with the coffee-drinking nations of the world.
In 2006, the country consumed 45,000 tonnes of coffee beans. But by 2023, consumption is expected to hit 300,000 tonnes a year, according to the chairman of the board of supervisors with the Chongqing Coffee Exchange, which oversees the largest coffee trading hub in China.
That’s a compound annual growth rate (CAGR) of nearly 12 percent – more than double the expected 5 percent CAGR for the global coffee market.
America’s No. 1 technical analyst just released a jaw-dropping video showing investors how to average 89% a day. He makes average mutual fund returns look absolutely PATHETIC.
Imports of beans are soaring
In 2017, China’s coffee imports grew 265 percent in U.S. dollar terms – the biggest jump of any country.
But at US$520 million, it still accounts for just 1.6 percent of the global total.
Give it another 10 years, however, and you’re looking at a country that will potentially import US$1.5 to US$2 billion a year worth of coffee – making China a top five importer.
That’s obviously good for coffee retailers in China. And just like the country’s impact on all other commodities it became a major consumer of in the past, coffee prices should do well in a world where Chinese are becoming coffee-drinkers.
So no matter who is going to win China’s coffee store wars – Starbucks or Luckin or some other company – it makes sense to invest in coffee for the long term.
However, there are limited options for investors to invest in coffee directly. One way is through the exchange-traded note (ETN) the iPath Series B Bloomberg Coffee Subindex Total Return ETN (Exchange: New York; ticker: JO).
It invests in coffee futures to track the performance of the Bloomberg Coffee Subindex Total Return.
This ETN, however, has performed poorly over the past – delivering a negative return of 33 percent in the past year, because of weak coffee prices. That compares with a 19 percent gain for Starbucks, the world’s largest coffee chain operator.
But China’s growing presence in the global coffee market – one that was not even visible just a decade ago – could change that by driving coffee prices much higher in the next few years.
Editor, Stansberry Pacific Research
P.S. Right now, there’s a US$26 trillion infrastructure boom taking place in China and across Asia. And I’ve found three ways to play this trend – and potentially make hundreds of percent gains. You can get all the details right here.