For several years, coffee prices remained low on historical analogies. This poses many challenges to producers. Protect yourself from the low prices they can only through the hedge price risks on the futures markets. And speculators willing to take risks hedger coffee, earning a profit on this.
Attacks on higher prices
Over the last 5-6 years the price of Arabica coffee fell more than $ 3 to $ 0.5-0.6 per pound. Coffee producers had not been as engaged in an intensive hedging price risks and for any occasions to try to carry out attacks on the increase. Thus, at the end of 2003, as soon as the data on the reduction of certified coffee stocks on the New York Stock Exchange (NYBOT), the first attack on the producer price increases. As early as December 2003 the growth was attributable to purchases of quotations of major hedger, who covered their huge short position (Fig. 1).
On the one hand, a large short position of large hedger indicated that they preferred the last few years to stand on the short side of the market, as reflected falling quotations for coffee on the New York Stock Exchange. On the other hand, the large net short position of large funds in a declining certified stocks - is the temptation to provoke attacks to increase the market to get funds giants were forced to close their short positions. Large net short position of large investment funds has become a major factor in the growth of quotations at the beginning of this year.
Obzharschiki coffee immediately began to record their lowest prices. The growth of the net long position hedger testified next. Obzharschiki looked ahead to next season the demand for coffee in the northern hemisphere, knowing the uncertainty of world class Arabica production volumes in the season 2004-2005. Speculators focused on projections of the volume of the harvest season in Brazil in 2004-2005. National Brazilian Company Conab reported that crop varieties of Arabica in the season will be 34-37.5 million bags (bag of 60 kg.) Although this is higher than the previous season (28.46 million bags), but analysts and the market's expectations of 47 million bags Brazil.
Building up a long position
Fervor speculators slightly alienated communication with the London Stock Exchange LIFFE that Vietnam exports robusta coffee in full force and effect. According to the Government of Vietnam, in November 2003, sold on the export of 50 tons of coffee. Nevertheless, Obzharschiki coffee and speculators continued intensive purchases of spot-market, and so were the causes. According to Starbucks Corp., Leader of the U.S. coffee market, Americans in 2003 drank coffee a record number - 19.3 million bags, or 68% of the total crop grown in Brazil. This is the highest level of coffee consumption over the past 30 years. The demand is clear.
To higher prices pushed to extravagant reports of international charitable organizations. Thus, the organization Oxfam has accused the four largest coffee companies - Kraft Foods, Procter & Gamble, Sara Lee and Nestle - is that they deliberately kept the low prices for coffee. Namely, low prices forced thousands of farmers around the world move to other crops. Representatives of International Coffee Organization (ICO) said that the low coffee prices have forced many farmers in Latin America to use the coffee plantations for the cultivation of marijuana, coca and opium poppy.
The first attack
World coffee prices began to rise from the first days of 2004, demand for and supply of coffee came to equilibrium. Overproduction of coffee has gone down. However, in January 2004, the World Bank warned in its report that the rise in prices does not mean an end to all the problems of coffee growers. According to bank analysts, the rise in prices is likely a temporary phenomenon, caused by the stability of the social sphere and economy of the coffee producers. Prices are still the lowest in the history of the coffee industry. The three largest producers - Brazil, Colombia and Vietnam - offer up to 61% of the world's coffee. More manufacturers are directly dependent on what happens with these three giants of coffee.
While Brazil and moved to a new technology, until April 2004 was still the danger of a second, that the Brazilian coffee crop may be subjected to frost. And if the crops die, the price of coffee may podprygnut up to heaven. But this is only an assumption. Even if the Brazilian coffee does not grow at all, the world's reserves more than sufficient. Therefore, prices do not rise much.
Hedger on the part of consumers (obzharschikov coffee) open long positions in futures by market in order to reduce the risks associated with possible increase in coffee prices. Do, how to say speculators, "bekvardeyshn normal" (normal backwardation). Hedger on the part of producers covered their short positions on futures, locking its insurance against lower prices.
Speculators also knowingly selling hedger its obligations for the supply of coffee at low prices, in parallel through two operations. The first - bought from the spot-market coffee and store it for the purpose of future resale at higher prices. The second - held at the futures market by intraday operations to pay off their obligations to other speculators at lower prices to compensate, thus, their own interests. World Bank was the right one. By the end of January 2004, coffee prices went down. Obzharschiki coffee fixed position in the futures market by selling their futures contracts. Bekvardeyshn positive. Coffee producers were in a short position, selling futures contracts, insuring against low prices. Do, how to say speculators "normal contango" (normal contango).
Fig. 1. The dynamics of futures prices for Coffee (NYBOT) in 2003-2004 (daily schedules).
Speculators were selling previously purchased for the low price of coffee and get their profits in the spot market, and bought futures contracts at all hedger of coffee, assuming all the risks, which are then compensated for intraday transactions. Profit speculators in January amounted to more than 6% (Fig. 2).
Net zero position
The factors of lower prices in February are: unnecessarily long position obzharschikov on the New York Stock Exchange and the London NYBOT LIFFE, the temporary strengthening of the dollar on the world market, the growing stocks of coffee, as well as falling commodity index Commodity Research Bureau (CRB).
The period from late January to early May 2004 can be described as uncertain, the correction. On the one hand, the reported increase in stocks of coffee contributed to lower prices. Thus, the German group Neumann said the expansion of its storage of goods in Germany doubled. Plans to build a new elevator tower for storage of coffee and increased storage up to 30 tons. On the other hand, stopped the fall in prices reported rapid sale of the coffee harvest in 2003 In early March News Agency Safras & Mercado reported that Brazilian farmers have already sold 81% of the harvest season of 2003, a scandal in the London stock exchange LIFFE, associated with the improper certification of robusta varieties, only contributed a small increase in the prices of coffee futures.
By early May 2004, large investment funds had a net zero position in the futures markets. This meant only one thing in common: they are equally ready to play as the increase or decrease in the. Speculators started to take into account the weather factor, as the cooling in Brazil could cause a sharp rise in coffee prices. At the same time, favorable weather could contribute to lowered mood.
Weather
The unpredictable weather has been beneficial only to speculators who will wait. In early May, reports that in Brazil started in the cool winters with heavy rainfall, have led to increases in the prices of Arabica coffee. This weather in Brazil has meant a delay for a month in the harvest.
Have calculated the true risk speculators. By the end of May, prices rose by 27% compared to on-chalom month. However, in early June, came the first reports that the Brazilian coffee crop will not suffer from frost and will be collected in full. Started upward rally collapsed. In addition to these reports, the Ministry of Agriculture of Brazil stated that in the next year on new technologies will be collected a record 44.7 million bags of coffee. This means that only 77.3% grown coffee will be a buyer. After the collapse of prices of such statements was inevitable.
Weather provided an invaluable service to speculators coffee, bringing his impressive earnings. At the end of April 2004 Obzharschiki coffee futures market did bekvardeyshn, fearing a rise in prices. Speculators knowingly take risks obzharschikov and sold them to futures contracts. Parallel to this, they not only bought a cheap coffee in the spot market and store it, but also offset their obligations under the Futures for the supply of coffee obzharschikam in intraday speculation.
After the prices went up by 27% and turned in the opposite direction, again, speculators have provided a service to producers of coffee. Manufacturers do contango in the futures market, as speculators sold on the spot market previously bought a cheap coffee. The ability of speculators to play the intraday price volatility has enabled them to more than compensate for all the risks that they knowingly took on themselves in the process of hedging the price of coffee producers and obzharschikami. Speculators profit in May was more than 8%.
Stockpiled cheap coffee
In June 2004, the ICO said that in the near future the price of coffee may grow by 15-20% due to increased demand in countries of coffee origin, and in new markets. In particular, consumption of coffee in China and Russia is growing at 15% per year.
However, speculators less optimistic about the prospects for price growth was evaluated. They believed that if Brazil is not frost or drought this year, then expect a substantial increase in prices will not have to. Moreover, large stocks, and is projected to yield large in Brazil next season.
By the end of June it was reported that half of the crop season 2004-2005. already collected. It is estimated that the Brazilian news agency Safras & Mercado, the harvest is an impressive size - 41.3 million bags. Obzharschiki coffee on the New York Stock Exchange NYBOT
Fig. 2. The relative price changes on futures Coffee (NYBOT) and the speculative profit,%. continued to liquidate their long positions.
The London Stock Exchange in June LIFFE trading Vietnamese robusta coffee almost frozen: obzharschiki preferred to buy robusta in Indonesia, where in June there was the peak of harvest.
Funds bear
In July 2004, speculators increase their short positions. Their opinion on the price dynamics are not changed. The tendency for a fall was rather strong, while supply and demand say that the continued fall in prices in the short period in question. The reason - delay collection of the new crop in Brazil because of the unusually rainy weather in May and June, as well as difficulties in the shipment had already collected from Brazilian coffee port in response to the shortage of containers and place in the courts. According to the agency Safras & Mercado, to July 19 in Brazil due to the prolonged rains has collected only 56% yield (compared to 70% for the same period last year).
According to estimates, the largest Brazilian cooperative Cooxupe, this year only 66% of the total production of coffee is of good quality, suitable for export. Previously, the figure on the average reached 80%, and last year was equal to 83%.
At the New York Stock Exchange
NYBOT in July 2004, large investment funds have moved to the short side of the market. This change in the position of the major hedger occurred through the reduction of old long positions, and by adding new short. Thus, the large investment funds have preferred to play for a lowering of quotations that were received by the increased purchasing obzharschikov on the spot market and did not allow rates to decline sharply.
The London Stock Exchange market LIFFE robusta coffee repeated in July, the dynamics of the New York Stock Exchange, although it was more an expression of support related to the fact that the pressure of sales dropped sharply - from the producers were still fresh in the memory of stock quotes above $ 800 per ton, and they preferred expected price increases. French Calyon said that it estimated that the robusta varieties will reach 41.1 million bags, due to sharply increased production of coffee in Vietnam and Cameroon.
Players wait
Following these reports, many players took the coffee market fence. In August 2004, reports on the positions of the coffee traders on the New York Stock Exchange NYBOT showed that large hedger increased their net long position. Thus, increasing the net long position of large hedger showed that the investment funds to anticipate a price increase.
But speculators were willing to take risks obzharschikov coffee, they sold futures contracts. Obzharschiki coffee, on the other hand, preferred the cautious tactics and marginally increasing their purchases. Certified coffee stocks the New York Stock Exchange continued to rise, but it does not contribute to the initiation of attacks on the rise in prices.
It is estimated the German statistical agency FOLicht, world coffee production in 2004 amounted to 105.1 million bags. For comparison: last year it was produced 120.7 million bags. Analysts believe that demand for coffee in the current year amount to 112 million bags, so that demand will outstrip supply.
The race for the projections
In September, futures prices for Coffee (NYBOT) soared to $ 0.86 per pound. The reason were only projections. The German group Neumann, a major player in the warehouse coffee market, has published a report on their studies of coffee plantations in Brazil. The report concluded that the Brazilian coffee crop in the season 2005-2006. may be significantly less than previously thought, and reached only 34 million bags to 40.95 million this season. Reducing the harvest will occur due to a sharp deterioration of the coffee plantations in Brazil, as well as the normal cycling of the crop.
Evaluation of the statistical agency and the record group FOLicht Neumann provoked hedger and speculators to purchase more active Arabica in New York. However, bullish market, there was short-lived. At the London LIFFE robusta coffee market was not susceptible to the growth of quotations on the New York NYBOT because of the approaching Vietnamese crop, which is expected in this season's great. Revenues speculators in September amounted to about 10%.
Growth in coffee prices has positive effects on producers and negative for obzharschikov. Manufacturers are forced to heavily to hedge their positions in the coffee market by opening more and more short positions on futures contracts. As a prevailing price of coffee in the future, nobody knows. Forecasting the price of the commodity market - the case ungrateful.
Too many destabilizing factors that could expand the market in an unpredictable issues. Active interest in the coffee futures market - to the expanse of speculators. Thus, the Cyprus company Vis Futures Investment, Ltd., Which specializes in futures contracts for the 9 months of this year has already started on speculation in futures Coffee (NYBOT) about 54% (Fig. 2).
Attacks on higher prices
Over the last 5-6 years the price of Arabica coffee fell more than $ 3 to $ 0.5-0.6 per pound. Coffee producers had not been as engaged in an intensive hedging price risks and for any occasions to try to carry out attacks on the increase. Thus, at the end of 2003, as soon as the data on the reduction of certified coffee stocks on the New York Stock Exchange (NYBOT), the first attack on the producer price increases. As early as December 2003 the growth was attributable to purchases of quotations of major hedger, who covered their huge short position (Fig. 1).
On the one hand, a large short position of large hedger indicated that they preferred the last few years to stand on the short side of the market, as reflected falling quotations for coffee on the New York Stock Exchange. On the other hand, the large net short position of large funds in a declining certified stocks - is the temptation to provoke attacks to increase the market to get funds giants were forced to close their short positions. Large net short position of large investment funds has become a major factor in the growth of quotations at the beginning of this year.
Obzharschiki coffee immediately began to record their lowest prices. The growth of the net long position hedger testified next. Obzharschiki looked ahead to next season the demand for coffee in the northern hemisphere, knowing the uncertainty of world class Arabica production volumes in the season 2004-2005. Speculators focused on projections of the volume of the harvest season in Brazil in 2004-2005. National Brazilian Company Conab reported that crop varieties of Arabica in the season will be 34-37.5 million bags (bag of 60 kg.) Although this is higher than the previous season (28.46 million bags), but analysts and the market's expectations of 47 million bags Brazil.
Building up a long position
Fervor speculators slightly alienated communication with the London Stock Exchange LIFFE that Vietnam exports robusta coffee in full force and effect. According to the Government of Vietnam, in November 2003, sold on the export of 50 tons of coffee. Nevertheless, Obzharschiki coffee and speculators continued intensive purchases of spot-market, and so were the causes. According to Starbucks Corp., Leader of the U.S. coffee market, Americans in 2003 drank coffee a record number - 19.3 million bags, or 68% of the total crop grown in Brazil. This is the highest level of coffee consumption over the past 30 years. The demand is clear.
To higher prices pushed to extravagant reports of international charitable organizations. Thus, the organization Oxfam has accused the four largest coffee companies - Kraft Foods, Procter & Gamble, Sara Lee and Nestle - is that they deliberately kept the low prices for coffee. Namely, low prices forced thousands of farmers around the world move to other crops. Representatives of International Coffee Organization (ICO) said that the low coffee prices have forced many farmers in Latin America to use the coffee plantations for the cultivation of marijuana, coca and opium poppy.
The first attack
World coffee prices began to rise from the first days of 2004, demand for and supply of coffee came to equilibrium. Overproduction of coffee has gone down. However, in January 2004, the World Bank warned in its report that the rise in prices does not mean an end to all the problems of coffee growers. According to bank analysts, the rise in prices is likely a temporary phenomenon, caused by the stability of the social sphere and economy of the coffee producers. Prices are still the lowest in the history of the coffee industry. The three largest producers - Brazil, Colombia and Vietnam - offer up to 61% of the world's coffee. More manufacturers are directly dependent on what happens with these three giants of coffee.
While Brazil and moved to a new technology, until April 2004 was still the danger of a second, that the Brazilian coffee crop may be subjected to frost. And if the crops die, the price of coffee may podprygnut up to heaven. But this is only an assumption. Even if the Brazilian coffee does not grow at all, the world's reserves more than sufficient. Therefore, prices do not rise much.
Hedger on the part of consumers (obzharschikov coffee) open long positions in futures by market in order to reduce the risks associated with possible increase in coffee prices. Do, how to say speculators, "bekvardeyshn normal" (normal backwardation). Hedger on the part of producers covered their short positions on futures, locking its insurance against lower prices.
Speculators also knowingly selling hedger its obligations for the supply of coffee at low prices, in parallel through two operations. The first - bought from the spot-market coffee and store it for the purpose of future resale at higher prices. The second - held at the futures market by intraday operations to pay off their obligations to other speculators at lower prices to compensate, thus, their own interests. World Bank was the right one. By the end of January 2004, coffee prices went down. Obzharschiki coffee fixed position in the futures market by selling their futures contracts. Bekvardeyshn positive. Coffee producers were in a short position, selling futures contracts, insuring against low prices. Do, how to say speculators "normal contango" (normal contango).
Fig. 1. The dynamics of futures prices for Coffee (NYBOT) in 2003-2004 (daily schedules).Speculators were selling previously purchased for the low price of coffee and get their profits in the spot market, and bought futures contracts at all hedger of coffee, assuming all the risks, which are then compensated for intraday transactions. Profit speculators in January amounted to more than 6% (Fig. 2).
Net zero position
The factors of lower prices in February are: unnecessarily long position obzharschikov on the New York Stock Exchange and the London NYBOT LIFFE, the temporary strengthening of the dollar on the world market, the growing stocks of coffee, as well as falling commodity index Commodity Research Bureau (CRB).
The period from late January to early May 2004 can be described as uncertain, the correction. On the one hand, the reported increase in stocks of coffee contributed to lower prices. Thus, the German group Neumann said the expansion of its storage of goods in Germany doubled. Plans to build a new elevator tower for storage of coffee and increased storage up to 30 tons. On the other hand, stopped the fall in prices reported rapid sale of the coffee harvest in 2003 In early March News Agency Safras & Mercado reported that Brazilian farmers have already sold 81% of the harvest season of 2003, a scandal in the London stock exchange LIFFE, associated with the improper certification of robusta varieties, only contributed a small increase in the prices of coffee futures.
By early May 2004, large investment funds had a net zero position in the futures markets. This meant only one thing in common: they are equally ready to play as the increase or decrease in the. Speculators started to take into account the weather factor, as the cooling in Brazil could cause a sharp rise in coffee prices. At the same time, favorable weather could contribute to lowered mood.
Weather
The unpredictable weather has been beneficial only to speculators who will wait. In early May, reports that in Brazil started in the cool winters with heavy rainfall, have led to increases in the prices of Arabica coffee. This weather in Brazil has meant a delay for a month in the harvest.
Have calculated the true risk speculators. By the end of May, prices rose by 27% compared to on-chalom month. However, in early June, came the first reports that the Brazilian coffee crop will not suffer from frost and will be collected in full. Started upward rally collapsed. In addition to these reports, the Ministry of Agriculture of Brazil stated that in the next year on new technologies will be collected a record 44.7 million bags of coffee. This means that only 77.3% grown coffee will be a buyer. After the collapse of prices of such statements was inevitable.
Weather provided an invaluable service to speculators coffee, bringing his impressive earnings. At the end of April 2004 Obzharschiki coffee futures market did bekvardeyshn, fearing a rise in prices. Speculators knowingly take risks obzharschikov and sold them to futures contracts. Parallel to this, they not only bought a cheap coffee in the spot market and store it, but also offset their obligations under the Futures for the supply of coffee obzharschikam in intraday speculation.
After the prices went up by 27% and turned in the opposite direction, again, speculators have provided a service to producers of coffee. Manufacturers do contango in the futures market, as speculators sold on the spot market previously bought a cheap coffee. The ability of speculators to play the intraday price volatility has enabled them to more than compensate for all the risks that they knowingly took on themselves in the process of hedging the price of coffee producers and obzharschikami. Speculators profit in May was more than 8%.
Stockpiled cheap coffee
In June 2004, the ICO said that in the near future the price of coffee may grow by 15-20% due to increased demand in countries of coffee origin, and in new markets. In particular, consumption of coffee in China and Russia is growing at 15% per year.
However, speculators less optimistic about the prospects for price growth was evaluated. They believed that if Brazil is not frost or drought this year, then expect a substantial increase in prices will not have to. Moreover, large stocks, and is projected to yield large in Brazil next season.
By the end of June it was reported that half of the crop season 2004-2005. already collected. It is estimated that the Brazilian news agency Safras & Mercado, the harvest is an impressive size - 41.3 million bags. Obzharschiki coffee on the New York Stock Exchange NYBOT
Fig. 2. The relative price changes on futures Coffee (NYBOT) and the speculative profit,%. continued to liquidate their long positions.The London Stock Exchange in June LIFFE trading Vietnamese robusta coffee almost frozen: obzharschiki preferred to buy robusta in Indonesia, where in June there was the peak of harvest.
Funds bear
In July 2004, speculators increase their short positions. Their opinion on the price dynamics are not changed. The tendency for a fall was rather strong, while supply and demand say that the continued fall in prices in the short period in question. The reason - delay collection of the new crop in Brazil because of the unusually rainy weather in May and June, as well as difficulties in the shipment had already collected from Brazilian coffee port in response to the shortage of containers and place in the courts. According to the agency Safras & Mercado, to July 19 in Brazil due to the prolonged rains has collected only 56% yield (compared to 70% for the same period last year).
According to estimates, the largest Brazilian cooperative Cooxupe, this year only 66% of the total production of coffee is of good quality, suitable for export. Previously, the figure on the average reached 80%, and last year was equal to 83%.
At the New York Stock Exchange
NYBOT in July 2004, large investment funds have moved to the short side of the market. This change in the position of the major hedger occurred through the reduction of old long positions, and by adding new short. Thus, the large investment funds have preferred to play for a lowering of quotations that were received by the increased purchasing obzharschikov on the spot market and did not allow rates to decline sharply.
The London Stock Exchange market LIFFE robusta coffee repeated in July, the dynamics of the New York Stock Exchange, although it was more an expression of support related to the fact that the pressure of sales dropped sharply - from the producers were still fresh in the memory of stock quotes above $ 800 per ton, and they preferred expected price increases. French Calyon said that it estimated that the robusta varieties will reach 41.1 million bags, due to sharply increased production of coffee in Vietnam and Cameroon.
Players wait
Following these reports, many players took the coffee market fence. In August 2004, reports on the positions of the coffee traders on the New York Stock Exchange NYBOT showed that large hedger increased their net long position. Thus, increasing the net long position of large hedger showed that the investment funds to anticipate a price increase.
But speculators were willing to take risks obzharschikov coffee, they sold futures contracts. Obzharschiki coffee, on the other hand, preferred the cautious tactics and marginally increasing their purchases. Certified coffee stocks the New York Stock Exchange continued to rise, but it does not contribute to the initiation of attacks on the rise in prices.
It is estimated the German statistical agency FOLicht, world coffee production in 2004 amounted to 105.1 million bags. For comparison: last year it was produced 120.7 million bags. Analysts believe that demand for coffee in the current year amount to 112 million bags, so that demand will outstrip supply.
The race for the projections
In September, futures prices for Coffee (NYBOT) soared to $ 0.86 per pound. The reason were only projections. The German group Neumann, a major player in the warehouse coffee market, has published a report on their studies of coffee plantations in Brazil. The report concluded that the Brazilian coffee crop in the season 2005-2006. may be significantly less than previously thought, and reached only 34 million bags to 40.95 million this season. Reducing the harvest will occur due to a sharp deterioration of the coffee plantations in Brazil, as well as the normal cycling of the crop.
Evaluation of the statistical agency and the record group FOLicht Neumann provoked hedger and speculators to purchase more active Arabica in New York. However, bullish market, there was short-lived. At the London LIFFE robusta coffee market was not susceptible to the growth of quotations on the New York NYBOT because of the approaching Vietnamese crop, which is expected in this season's great. Revenues speculators in September amounted to about 10%.
Growth in coffee prices has positive effects on producers and negative for obzharschikov. Manufacturers are forced to heavily to hedge their positions in the coffee market by opening more and more short positions on futures contracts. As a prevailing price of coffee in the future, nobody knows. Forecasting the price of the commodity market - the case ungrateful.
Too many destabilizing factors that could expand the market in an unpredictable issues. Active interest in the coffee futures market - to the expanse of speculators. Thus, the Cyprus company Vis Futures Investment, Ltd., Which specializes in futures contracts for the 9 months of this year has already started on speculation in futures Coffee (NYBOT) about 54% (Fig. 2).
Yury Chebotarev
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