Coffee futures sale and delivery

Discussion in 'Commodity Futures' started by coffee, Sep 24, 2009.

  1. coffee



    I'm not shure this is the right place to ask.

    I have read other threads in the forum but did not find an answer to my question.

    Well my question is this...

    My family for many generations has earned a living by cultivating coffee. It's a bit hard but a honest and nice way of living. In my village most families make a living by producing coffee. Every season we strive to produce the best coffee, and even participate in coffee contests so we get prizes and try to sell it for a better price.

    We usually sell the coffee bean by the kilogram in the local market where every other family that produces coffee brings the product and is weighed and quality assesed by the companies that purchase (they are called intermediaries) and paid accoordingly. It has been like this for many years.

    The problem is... the intermediaries every season are more abusive. They fix the prices between them so when they come they purchase the beans at very very low prices and none of them will pay more than a given price. Every year the price is lower and lower. To cope with the decrease in price every season we try to produce a bigger quantity, but it's very unpredictable. Some seasons we even loose money, producing coffee is very expensive. The intermediaries sell the coffee at least 10 times more expensive than they purchase it.

    So now I'm in the university studying, and one of my classes is economy, and I learned that at large scale coffee is traded in futures. So I searched the internet to find the price of coffee futures and...

    COFFEE 'C' FUTURE (USd/lb.) 129.300

    I was shocked!!!

    I have not been in my town for years since I went to the city to study but am almost sure that the coffe price at which we sell is extremely, and I mean extremely low in comparison with that.

    In fact that price is so high that I'm sure that its not dollars per pound (it must be some different pound or more pounds). Yet, I'm sure it's tens of times higher than what we are paid.

    ¿How can I sell coffee futures of the coffee we produce? I asked my professor and he doesn't know.

    My family produces only some tonnes of coffee, but if you add up the whole town I'm sure it would be a HUGE quantity, if you add up the neighboring towns then we are speaking thousands of tonnes.

    So... I write a Coffee future contract (the obligation to deliver the coffee at a given price at a given time) and then what?

    I know that they are traded on NYMEX stock exchange in New York City, USA. ¿Should I give the contracts to them? ¿And then they will call me to deliver the coffee somewhere and pay me?

    I would really appreciate if someone could help me. Or maybe point me to the right place to ask. I called my country's stock exchange but they told me that they don't know anything about what I am asking. I also called banks and brokerage houses and even the ministry of agriculture but no one seems to know what I am talking about. ¿Should I call NYMEX in New York City?

    I made my best effort to write this in correct English but if I made a mistake or something is not clear please tell me and I will rephrase or correct the information.

    Thank you very much.
  2. dear sir

    this is some info for you

    I suggest you contact the exchange below
    if you think your coffee meets the requirements

    PS ... make sure you fully understand what you are doing

    if you go ahead with this idea

    good luck

    -ICE Futures U.S.-

    -Sep 24, 2009-
    Coffee C ® Futures
    Contract Specifications

    The Coffee C contract is the world benchmark for Arabica
    coffee. The contract prices physical delivery of
    exchange-gradegreen beans, from one of 19 countries of
    origin in a licensed warehouse to one of several ports in
    the U. S. and Europe, withstated premiums/discounts for
    ports and growths.

    37,500 pounds Contract Size

    Physical delivery Settlement
    A Notice of Certification is issued based on testing the
    grade of the beans and by cup testing for flavor. The
    Exchange uses certain coffees to establish the "basis".
    Coffees judged better are at a premium; those judged
    inferior are at a discount.
    None Daily Price Limit
    Mexico, Salvador, Guatemala, Costa Rica, Nicaragua,
    Kenya, New Guinea, Panama, Tanzania, Uganda, Honduras,
    and Peru all at par, Colombia at 200 point premium,
    Burundi, Venezuela and India at 100 point discount,
    Rwanda at 300 point discount, and Dominican Republic
    and Ecuador at 400 point discount.
    Deliverable Growths
    Exchange licensed warehouses in the Port of New York
    District (at par), the Port of New Orleans, the Port of
    Houston, the Port of Bremen/Hamburg, the Port of
    Delivery Points
  3. Wow, good luck. Just found this thread, please keep us posted on what you do. I hope it all works out.
  4. promagma


    Yep most of the trading for coffee is done on ICE (formerly called the NY Board of Trade). The NYMEX market is pretty dead.

    The contract specifications are here

    As you can see it is quoted in "Cents and hundredths of a cent up to two decimal places"

    So right now at $128 = $1.28 per lb.
    A contract is for 37,500 pounds

    Good luck!
  5. byteme



    Interesting story. Certainly coffee farmers around the world are paid pretty poorly (this is partly due to having a relatively low barrier to entry).

    Do you mind saying which country you are from? Somewhere in South America right? You mentioned there is a stock market in your country. It's possible there is a commodity exchange for coffee trading too especially if coffee is one of your country's big exports.

    If there is one, you might be better off first getting a foot in at this exchange by becoming a member there. It probably won't be cheap but if you combine your resources, could be a possibility. You can then cut out the intermediaries that come to your town.

    Good luck.
  6. Its $1.29 per pound, not $129.00 per pound

  7. heech


    I don't know if the logistics of actually delivering physical coffee after selling futures makes sense, if it's just for your individual family.

    What would make sense:

    - if the intermediaries are making an unreasonable amount of profit, you should compete with them. Get into their line of business: buy in bulk from local farmers, sell futures, deliver physical stock in the thousands of tons every year. That's obviously a longer term plan.

    - if the intermediaries are actually making "fair" profit and you just want to be in the coffee business, and your real goal is just getting rid of the uncertainty that your family faces when coffee prices fluctuate... (not knowing how much the coffee you cultivate will be sold for months down the line)... then that's exactly what coffee futures are intended for.

    It's also something you could start right now. You can lock in the "market" price of coffee, by selling coffee futures during planting season. Your family can then plant whatever amount of crops makes sense based on that price.

    If the price of coffee drops by the time your family sells its crop, then hopefully your profit on futures would make up for it. (Of course, if price of coffee climbs, you'll miss out.)
  8. my local coffee shop sells and grinds beans from this group

    perhaps it would be wise to contact them sir about how one can do better as a farmer of coffee

    good luck

  9. Don't forget to translate the price futures into your local currency.

    This mean that to put on an effective hedge you will need be short coffee futures and long your local currency, by futures, forwards or other means.
  10. Buy some civets. Feed your coffee beans to the civets. Collect the civet droppings with the coffee beans. Sell that "coffee" as Kopi Luwak. Your revenue "problem" will be solved. Ole'! :cool:
    #10     Sep 25, 2009