World: Coffee’s rally forces traders to seek alternative hedging plans

Published 2024년 12월 24일

Tridge summary

Coffee prices have surged by 70% in New York this year, leading to increased risks for traders and the need to hedge prices. The liquidity pressure in the market, dominated by small players, has resulted in significant margin calls and cash flow issues. Traders are turning to alternatives like options, off-exchange solutions, and liquidity swaps to mitigate these challenges. Banks are offering these products to both large and small clients to help them avoid margin calls and cash flow pressures. The article also discusses the use of repurchase agreements and the strategy of trading less to manage cash flow. Despite these challenges, the coffee market remains profitable, as highlighted by the improved performance of Louis Dreyfus Company's coffee division.

Disclaimer:The above summary was generated by Tridge's proprietary AI model for informational purposes.

Original content

(Dec 24): Coffee prices have been on a tear and for the traders who buy, sell and ship beans around the world this means navigating additional risks. They are turning to alternative ways to hedge prices and avoid or delay the cash crunch caused by volatile moves. Futures prices for arabica beans — the variety favoured for high-end brews — have gained around 70% in New York this year, breaking past the highest levels in more than forty years. Big price swings are a regular feature. When prices move too high, too fast, exchanges or brokers that manage a trader’s positions require more collateral, or margin, to maintain sold futures hedges that have become unprofitable. With millions of bags of coffee held in stock or transit, that can mean billions of dollars in margin calls when there’s a big price move. For a trader with cargo on a ship or awaiting final payment from an end-buyer, margin calls can drain their cash position quickly. Increasingly they are turning to options and ...

Source: Theedgemarkets