Coffee prices fluctuations should look for alternative ways to hedge

Coffee prices have shown a significant increase, which means more risks to customers who buy, sell and charge. Therefore, they turn into alternative ways to hedge price movements and avoid or delay the liquidity crisis caused by price fluctuations. The prices of the future contracts for Arabica – the favorite class used to prepare a luxury drink – rose about 70% in New York this year, exceeding their highest levels in more than 40 years. These contracts are characterized by significant fluctuations in prices. When prices rise powerfully and rapidly, the stock exchanges or brokers who run traders ask their centers more guarantees, or margins, to maintain the profitability of the future hedging contracts. In light of the presence of millions of coffee bags in the warehouses or on the way to delivery, this could mean asking two billions of dollars when a major price movement occurs. These claims can quickly exhaust the liquidity with a customer who has a consignment on a ship or waits for the last group of a final buyer. According to traders and mediators, they are increasingly using on option contracts and solutions outside the stock exchange to avoid more guarantees, or it reduces their activities. Pressure on liquidity, the movements show the increase in pressure on liquidity in a market dominated by young traders who are not ready for these big cash claims. This has led to more fluctuations in prices in light of the presence of lower liquidity in the market. Cocoa, the other commodity that is moving strongly this year, has similar problems. “The current period is witness to serious fluctuations and is very difficult for traders … You must change the way you handle these matters. Next the usual methods will lead to liquidity,” according to Kate Gallver, the director of “Origin Commodities” and “Dragon Commodities” for coffee trade in the Kingdom United. Transferred with coffee risk for coffee risks when grains of their graduates in countries such as Brazil, Vietnam or Guatemala are sent to buyers, most of them in Europe and the United States. If customers are committed to buying coffee in the current market at prices related to the stock exchange, they usually sell future contracts to hedge some of the low value of the consignment. The market witnessed the claims for guarantees of up to $ 7 billion during the past November, according to estimates of one of the providers of consulting services in Brazil, the largest product of coffee. Banking solutions and banks apply for large groups of products for some time known as ‘liquidity syndrome’, where it provides for a specific period for a specific period. The structures of these transactions enable traders to avoid related guarantees to the delivery of shipping, even if they will have to pay the settlement in the end if the prices do not fall with the agreement of the agreement. Traders said that brokers and financial services groups recently provided the same product as the product for young customers. “There is definitely an increase in demand for these products,” according to Albert Scala, the first vice president of trading in “Stonex Group”, which added that the company supplies on a limited scale of liquidity providers. He said the traders also use the barters to reduce the impact of other types of guarantees, such as the first margin needed to conclude the hedging contract. The importance of re -purchasing agreements in the sector is also increasing in the sector. And in it, the client sells the actual coffee shipping to the bank or the mediator to obtain temporary liquidity and avoid the pressure that exists through the price movement. Then the customer buys the cost at an agreed interest at a specific time. “There is a wonderful activity outside the stock exchange, either through liquidity bodies in banks or the actual purchase of the commodity present from traders and later resold to obtain liquidity,” according to Dru Ghirate, and the goods of the TPIAP group.