Free Economics Dissertations - Coffee Exports Are Expected To Fall To An Eight-year Low Of 169,980 Tonne,
Coffee exports are expected to fall to an eight-year low of 169,980 tonne, or 2.83 million 60-kilogram bags, in the current year ending Sept 30, from 229,320 tonne, or 3.82 million bags, a year earlier. India, the world’s fifth-biggest coffee exporter is set to witness decline as farmers and traders are withholding beans on expectations of higher prices.
One of the biggest problems facing the traders in the Indian coffee industry is the time difference between India and the New York and London trading centres. Indian traders were now finding it difficult to hedge their risk. The local exchange functioned only till 5 pm when the LIFFE and NYBOT and other European markets functioned till over 11.30 pm IST.
4.0 Conclusion.
Coffee, like any other agro-based product, is prone to seasonal changes. Coffee trees are known to produce more beans one year and fewer beans the next year. Speculation is therefore very high in this industry. The changing habits with regard to health and related issues have also led to a fall in demand. The United States which once had a market share in total coffee consumption as high as 60 percents in recent times have fallen well below 35 percent. All these factors play a significant role in price volatility. Experts have come up ideas to keep price stable. For example, dealing in the options markets which gives the buyer or the seller the right exercise his option but is under no obligation to do so.
To conclude, it is significantly important to maintain the production and processing in a manner that sustains physical and financial position in the industry. The increased level of speculation creates numerous financial difficulties for the producers and the consumers. Financial mechanism such as Futures and Options provide for an environment where producer and consumer interests are maintained. We can see through the chapters that being able to sell goods at price determined by market sentiments ensures efficient flow of goods in the markets. The level of uncertainty due to factors beyond control creates price fluctuations that are detrimental for efficient working of the markets.
Critics have pointed out that excessive speculations result in runs in prices during which futures prices are determined more by market psychology and game strategy than underlying economic fundamentals. They point out that futures are more susceptible to speculative distortions primarily due to specified delivery dates, narrowly defined commodities, large open interests relative to the supply of deliverable commodity and high leverage.
References and Bibliography.
John Buckley, Guide to World Commodity Markets - Physical, Futures and Options Trading, Seventh Edition.
Franklin R. Edwards & Cindy W. Ma, Futures and Options, International Editions 1992
Websites:
Coffee Futures Exchange of India Ltd www.cofei.com
TFC Commodity Chart - http://tfc-charts.w2d.com
The Economic Times, Times of India Group www.economictimes.
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