Relationship between coffee prices in physical and futures markets - - PowerPoint PPT Presentation

▶
relationship between coffee prices in physical and
SMART_READER_LITE
LIVE PREVIEW

Relationship between coffee prices in physical and futures markets - - PowerPoint PPT Presentation

Jun 13, 2023 300 likes •593 views

Relationship between coffee prices in physical and futures markets AFCA 15 th Conference & Exhibition Addis 16 February 2017 Dr Denis Seudieu Chief Economist International Coffee Organization INTRODUCTION Physical market

slide-1
SLIDE 1

Relationship between coffee prices in physical and futures markets
 
 AFCA 15th Conference & Exhibition
 Addis 16 February 2017

Dr Denis Seudieu Chief Economist International Coffee Organization

slide-2
SLIDE 2

INTRODUCTION

❖Physical market prices Spot or physical prices will be represented by ICO composite indicator price, ICO group indicator prices,

➢Including Colombian Milds (CM); ➢Other Milds (OM); ➢Brazilian & Other Arabica Natural (BAN); ➢Robustas (ROB)

slide-3
SLIDE 3

INTRODUCTION

The share of each market in the four groups EU USA Colombian Milds (CM) 46% 54% Other Milds (OM) 59% 41% Brazilian Naturals (BAN) 74% 26% Robustas (ROB) 83% 17% ICO Composite indicator price Colombian Milds (CM) 10% Other Milds (OM) 23% Brazilian Naturals (BAN) 30% Robustas (ROB) 37%

slide-4
SLIDE 4

INTRODUCTION

❖Futures markets prices ➢New York “C” Contract (Washed Arabicas)

❑ Average of the 2nd and 3rd positions

➢London Futures Market for Robustas

❑Average of the 2nd and 3rd positions

❖Period of observations: 1990 - 2016

slide-5
SLIDE 5

BEHAVIOUR OF CASH AND FUTURES COFFEE PRICES

slide-6
SLIDE 6

Graph 2 - ICO Composite indicator & London Futures contract prices

US cents/lb 0.00 55.00 110.00 165.00 220.00 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 ICO Composite LN Futures

slide-7
SLIDE 7

Graph 3 - Colombian Milds Indicator & New York Futures price

US cents/lb 0.00 75.00 150.00 225.00 300.00 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 CM NY Futrures

slide-8
SLIDE 8

Graph 4 - Other Milds & New York Futures Contract price

US cents/lb 0.00 75.00 150.00 225.00 300.00 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 OM NY Futrures

slide-9
SLIDE 9

Graph 5 -Brazilian Naturals & New York Futures contract price

US cents/lb 0.00 75.00 150.00 225.00 300.00 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 BAN NY Futrures

slide-10
SLIDE 10

London Futures market (annual averages)

US cents/lb 0.00 75.00 150.00 225.00 300.00 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 BAN LN Futures

slide-11
SLIDE 11

Graph 1 - ICO Composite Indicator & New York Futures contract prices

US cents/lb 0.00 75.00 150.00 225.00 300.00 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 ICO Composite NY Futrures

slide-12
SLIDE 12

Graph 7 - Robusta indicator price & London Futures contract price

US cents/lb 0.00 35.00 70.00 105.00 140.00 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 ROB LN Futures

slide-13
SLIDE 13

Graph 3b - Colombian Milds and New York Futures (monthly averages)

US cents/lb 0.00 100.00 200.00 300.00 400.00 Jan-94 Apr-96 Jul-98 Oct-00 Jan-03 Apr-05 Jul-07 Oct-09 Jan-12 Apr-14 Jul-16 Oct-18 Colombian Milds NY Futrures

slide-14
SLIDE 14

Graph 5b - Brazilian Naturals & New York Futures contract price (monthly averages)

US cents/lb 0.00 75.00 150.00 225.00 300.00 Jan-94 Apr-96 Jul-98 Oct-00 Jan-03 Apr-05 Jul-07 Oct-09 Jan-12 Apr-14 Jul-16 Oct-18 BAN NY Futrures

slide-15
SLIDE 15

Graph 6b - Brazilian naturals & London Futures contract price (Monthly averages)

US cents/lb 0.00 75.00 150.00 225.00 300.00 Jan-94Apr-96 Jul-98 Oct-00Jan-03 Apr-05 Jul-07 Oct-09Jan-12Apr-14 Jul-16 Oct-18 BAN LN Futures

slide-16
SLIDE 16

Graph 7b - Robusta indicator price & London Futures price (Monthly averages)

US cents/lb 0.00 50.00 100.00 150.00 200.00 Jan-94 Apr-96 Jul-98 Oct-00Jan-03 Apr-05 Jul-07 Oct-09Jan-12 Apr-14 Jul-16 Oct-18 Robusta LN Futures

slide-17
SLIDE 17

CORRELATION ANALYSIS

Table 1: Correlation coefficients (Annual averages) ICO Composite CM OM BAN ROB NY Futrures LN Futures ICO Composite 1 CM 0.9682 1 OM 0.9836 0.9862 1 BAN 0.9875 0.9692 0.9871 1 ROB 0.8806 0.7642 0.7933 0.8351 1 NY Futrures 0.9849 0.9752 0.9879 0.9924 0.8105 1 LN Futures 0.8739 0.7602 0.7870 0.8317 0.9980 0.8073 1

slide-18
SLIDE 18

CORRELATION ANALYSIS

Table 2: Correlation coefficients (Monthly averages) ICO Composite CM OM BAN ROB NY Futrures LN Futures ICO Composite 1 CM 0.9650 1 OM 0.9825 0.9839 1 BAN 0.9831 0.9625 0.9828 1 ROB 0.8791 0.7576 0.7880 0.8254 1 NY Futrures 0.9834 0.9697 0.9858 0.9887 0.8099 1 LN Futures 0.8723 0.7536 0.7822 0.8213 0.9971 0.8084 1

slide-19
SLIDE 19

REGRESSION ANALYSIS

❑ Extent to which Futures prices are good estimators of spot prices ❑ Simple regression analysis Y = aX + b Y is the dependent variable and represents the spot price (CM, OM, BAN or ROB); X is the explanatory variable and represents the futures price (“C” contract or London) “a” is the slope of the regression line, indicating the strength

  • f the relationship between the spot and the futures prices

“b” is a random or residual variable

slide-20
SLIDE 20

REGRESSION ANALYSIS


Table 3: Results of regressions for spot and futures prices Y = aX + b Y = Spot price X = Futures price Comlombian Others Brasilian Brasilian Robusta Milds (CM) Milds (OM) Naturals (BAN) Naturals (BAN) (ROB) & New York & New York & New York & London & London r 0.9697 0.9858 0.9776 0.8213 0.9971 r2 0.9404 0.9718 0.9775 0.6745 0.9943 a 1.1598 1.1222 1.0271 1.4355 1.0548 b

  • 4.9021
  • 7.584
  • 11.209

17.2798 2.4099

slide-21
SLIDE 21

Graph 8: Regression chart for Colombian Milds indicator price and New York Futures prices

0.00 100.00 200.00 300.00 400.00 0.00 75.00 150.00 225.00 300.00 y = 1.1598x - 4.9021 R² = 0.9404 Colombian Milds Colombian Milds = 1.1598 xNew York Futures - 4.9021 R² = 0.9404

slide-22
SLIDE 22

Graph 9: Regression chart for Other Milds and New York Futures

0.00 100.00 200.00 300.00 400.00 0.00 75.00 150.00 225.00 300.00 y = 1.1222x - 7.584 R² = 0.9718 Other Milds Other Milds = 1.1222xNY Futures - 7.584 R² = 0.9718

slide-23
SLIDE 23

0.00 75.00 150.00 225.00 0.00 75.00 150.00 225.00 300.00 R² = 0.9776 BAN

slide-24
SLIDE 24

Graph 11: Regression chart for Brazilian Naturals and London Futures

0.00 75.00 150.00 225.00 300.00 0.00 45.00 90.00 135.00 180.00 y = 1.4355x + 17.28 R² = 0.6745 BAN BAN = 1.4355 x LN Futures + 17.28 R² = 0.6745

slide-25
SLIDE 25

Graph 12: Regresion chart for Robusta and London Futures

0.00 50.00 100.00 150.00 200.00 0.00 45.00 90.00 135.00 180.00 y = 1.0548x + 2.4099 R² = 0.9943 Robusta ROB = 1.0548 x LN Futures + 2.4099 R² = 0.9943

slide-26
SLIDE 26

CONCLUSION

❑Strong relationship between spot and Futures prices ➢“C” contract has a very strong relationship with Brazilian & Other Naturals ➢Reduced link between BAN and London Futures (Vietnam factor) ➢London Futures market is a very good estimator of Robusta price

slide-27
SLIDE 27

CONCLUSION

  • Main conclusion:

❖ “C” contract does reflect Brazilian fundamentals although it doesn’t cover Brazilian origin ❖ Impact of Brazilian fundamentals on London Futures has been reduced due to Vietnamese fundamentals ❖ New York Futures and London Futures are driven by fundamentals of Brazil and Vietnam.

slide-28
SLIDE 28

Thank you