Coffee Traders' Forum - A Discussion about Coffee Futures Trading
Coffee Traders Discussion Forum
@ MoY :: no pity etc -- it is the situation where we independent producers and exporters are in. A case in point : look at the participants of the European coffee contract -- ( who drafted it) :: not one from producing community. The trade is what it is and is loaded in favour of the European roasters // distributors.
We have to live with it.
As to your other point :: in naaam situation is the same :: collectors or Farmers typically deliver FAQ // garbled coffee ( TAngoX - Vietnam price list) to Fdi trade houses for 70/80 pct payment @ market price and balance pct to be fixed, typically within 2 months.
Remember collectors cannot hold inventory Too Long as borrowing rates are 2-5 pct per month !!! Only the FDI trade houses can with their borrowing rates at Libor + 1.5 pct.
The exporters in this case have to hedge 100 pct of their cargo or sell fixed price forward. They have again no economic incentive for the market to go up; market going down means effectively a margin call onthe collector / farmer // local trade house whose 20/30 pct equity then gets wiped out. (?the locals don't hedge)When this equity is wiped out suddenly you see spikes in the robusta prices --- it's all a game that can be played only if your financing cost is @ Libor +1.5 pct. typically the same trade houses sell to JDE for LIBOR + 6 pct; the trading margin on the physical coffee is nihil as jde knows exactly the prices at origin in naam ( cfr TANGOx posts on Vietnam prices ) ... so there IS NO Information asymmetry in Vietnam . Complete cluster f%^k market thanks to the Swiss and Prussians trade houses. So importers make money only on the spread in financing and the 20/30 pct equity of the collector who are systematically wiped off -- yearly basis.
Intimex the largest coffee trader procier in the world ( 40000-50000 tonnes monthly ) makes an annual loss of 70 -80 million per annum.... no questions asked.
There is no sustainability in the trade -- a complete cluster ;
These local trade entities // collectors exist only for ONE and ONE purpose --- to provide liquidity to the farmer... albeit at losses for the economy at large. The banks end up with bad debt .. the country's fitch rating goes down and borrowing rates go up. This impacts the whole economy in turn till it all comes crumbling down.
The key to desperation is the rate at which you borrow money and the accruing losses which you hope to make up by trading more and faster .
Velocity of money does not mean an accrualmof wealth unless it is Beats your borrowing and overhead costs.