1945

Hedging and other operations

Coffee prices are inherently unstable. Irrespective of whether one is a producer, exporter, importer or roaster one must have a strategy to manage price volatility. For operators using borrowed funds most banks will insist upon a solid risk management strategy. Most of these strategies are designed using coffee futures and options to offset the price risk inherent with holding coffee inventories, or commitments to deliver coffee. Hedging can sometimes also be done by offsetting a sale of one type of physical coffee with the purchase of another type of coffee. This type of hedging is very dif?? cult as the physical coffee market is not as liquid as coffee futures and it may be dif?? cult to ?? nd a buyer at short notice for that particular coffee.

Related Subject(s): International Trade and Finance
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