Soaring coffee prices in the global market force traders to scramble for new hedging solutions

In New York, futures for arabica beans — the preferred variety for premium coffee — have surged about 70% this year, surpassing their highest level in more than 40 years, according to Bloomberg. The volatility has prompted exchanges or brokers to require more collateral, known as margin, to maintain short positions in futures contracts that have become unprofitable. Arabica coffee prices surge to record highs on concerns about supply shortages (Source: Bloomberg, ICE Futures US) For traders holding millions of bags of coffee in warehouses or in transit, that means they could face billions of dollars in margin calls as prices swing wildly. Traders with goods in transit or awaiting payment from end buyers are particularly vulnerable to cash shortages. In response, many traders have turned to alternatives, such as options or off-exchange solutions, to avoid having to post extra margin. Others have chosen to scale back their trading. The moves reflect growing liquidity pressures in ...