Printer Friendly

New developments at London Fox.

New developments at London Fox

Coffee has a significant impact on the economics of over 40 producing countries. In value, it is second to oil in terms of international trade and surpasses sugar, rice and wheat as the major agriculture commodity. Invisible earnings from coffee exports are twice those gained from rubber and four times cocoa and tea. Over 20 million people are employed in growing, distributing and retailing coffee worldwide. The interaction between the physical market and the futures market is now a significant aspect within the trading strategy of those 20 million people.

The London Coffee trade dates back hundreds of years when transactions to buy and sell produce took place in coffee houses. These provided a meeting point to gather news and information on shipping arrivals. These markets were subject to some risk: therefore the natural progression was to establish a market enabling merchants to allay their risk either on sales or purchases, thus limiting their exposure to volatile movements and so creating the evolution of the Coffee Futures or Terminal Market. A futures contract is an agreement to buy or sell a fixed amount of a commodity for delivery at a specific forward date and at a price agreed at the time of trade.

The current Robusta Futures Contract commenced trading in London during 1958 in sterling, providing all users with an effective hedging and speculative medium. Since the commencement of the futures contract, trading in London Robusta Coffee market had grown from 10,000 lots to approximately 1 million in 1990, with a record monthly volume achieved in March 1991 of 148,094 lots.

Volatility within the market had always been assured, as has liquidity - both crucial aspects to the success of a futures market. With severely depressed prices, resulting from the disbandment of the International Coffee Agreement in 1989, the physical and futures market had been deluged with coffee. Surplus is now at a record high, but with trading also running at a correspondingly high level, this market has seen a record number of 35,000 gradings this year.

Change to Dollar Trading

In January 1991, the Coffee Terminal Market Committee made the decision to change the contract price of the Robusta Futures and Options Contract from Sterling per ton to US Dollars per ton. This became effective March, 1, 1991 for July deliveries onwards. This new contract is currently trading in parallel with the sterling contract up until March 1992 from which point all trading will be transacted in US dollars only for both Futures and Options.

Lengthy deliberations took place prior to the change to US dollars, and substantial support for the change was received from a broad spectrum of users who believe it will attract further business from new areas.

The dollar denomination will provide a market increase in business, especially on the vital Options Market, and greater incentive for fund and pure speculators to become involved with Commodities. Arbitrable with the U.S. and Arabica markets will be both simplified and more accessible to traders and useres of the Contract. Far Eastern companies and those with a single currency - that is, dollar only book - will be encouraged to trade and hedge on this contract.

Inevitably there are come disadvantages in charging the contract price of an existing tradeable commodity, but this change is strongly felt to be in the best interests of the market in both the short and long term. Obviously, transitional periods can be difficult to operate but this gradual introduction had been considered best for the Market.

There is already sufficient evidence to show that prices fixation business from the new area is being traded against the Dollar Denominated Contract this business had not been executed on the London Market.

New delivery ports have been added to achieve a more internationally based contract, but traded within the advantage of London as a market. The American ports of New York and New Orleans have been introduced to this contract, together with the Mediterranean ports of Barcelona and Triests. Furthermore, in recognition of the increasing importance of Containerization, Felixstowe has also been added.

Introduction of Arabica

To widen the scope of the market within London, the European Washed Arabica Contract has been launched. The most significant reason for introducing an Arabica contract was the growing European consumer preference for it, at a time when Europe had also increased demand. Arabica commands a price premium on world markets over Robusta coffee. Until now, the only Arabica futures contract available has been in New York, but that has only U.S. delivery ports. The London FOX Arabica contract provides for physical delivery into Europe, thus opening up the whole of Westen Europe for the delivery of Arabica. Grading practioners are drawn from the London trade with the provision that any member of the market may participate as a grader,

The London FOX European Washed Arabica contract is traded in US cents per pound, which enables hedgers and traders to arbitrate with the New York contract.

Trading starts at 9:30 and and remains open until 19.00 hours - late enough for hedgers and traders in North America to participate in the marked.

All users of the FOX Coffee Market take comfort form the fact that London's futures market are well regulated by an Act of Parliament. Under the Financial Services Act 1986, FOX is a Recognized Investments Board (SIB). All floor members must be authorized members of the Securities and Futures Authority (SFA) which ensures protection to all users of the market.

All FOX contracts are cleared by the London Clearing House (LCH). The LCH is owned by Britains high street or clearing banks, which between them provide a discrete tangible backing of 150m [Pounds], and guarantee the trades between clearing members, acting as a principle to all contracts - both futures and option.

The medium of the London Futures and Options Exchange (FOX) Coffee Contracts is the ideal instrument for hedging physical risk and investment needs. With a secure and effective contact basis, producers, consumers, traders and brokers can employ these markets to optimise efficiency and reduce downside risks.

Further information on trading opportunities in the London FOX markets can be obtained from: London FOX, 1 Commodity Quay, St. Katherine Docks, London E1 9AX. Tel: (71)481 2080, Fax: (71)702 9923, Telex: 8843780 COMMOD G

By Helen Day, Business Development Manager, Coffee at London Fox.
COPYRIGHT 1991 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:European Washed Arabica Contract is added to London Futures and Options Exchange Coffee Contracts, thus allowing Arabica delivery in Western Europe
Publication:Tea & Coffee Trade Journal
Date:Sep 1, 1991
Previous Article:India: political upheaval doesn't aid industry.
Next Article:Brazil: growers curtail quality farming.

Related Articles
Potential washed Arabica contract in London.
On the market.
Euro-Differential Coffee vs. Euro-Prep.
Zimbabwe Coffee Growers' Association convenes.
Mysore & Monsooned Malabar: the return of India specialties.
France: Robustas continue to dominate the market.
Central America's coffee industries start secretariat.
Antwerp recognized as delivery port. (Transportation news).
NYBOT establishes european delivery points for coffee "C" contract. (Transportation News).
The view from Switzerland: despite the fact that the world's green coffee comes from dozens of different far-flung origins, it is no secret that the...

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters