introduction to soft commodity futures€¦ · as a global commodity, the cocoa market may attract...

Introduction toSoft Commodity Futures

FROM YOUR MORNING COFFEE AND DANISH TO YOUR HOT

CHOCOLATE BY THE FIRE, SOFT COMMODITY PRODUCTS ARE

A MAJOR COMPONENT OF EVERYDAY LIFE.

Coffee Futures

By understanding the fundamentals of the soft commodity product futures, traders and end-users can leverage better methods of price discovery and risk management.

Cocoa Futures

Sugar Futures

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SOFTCOMMODITY FUTURES

Rosenthal Collins Group, a Division of Marex Spectron

An investment in futures contracts involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits. You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources, and other relevant circumstances. Past performance is not necessarily indicative of future results.

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COFFEE FUTURESCoffee: An Overview

Millions of people all over the globe begin each and every day with coffee. This commodity is now cultivated in over 70 countries and is a major export commodity.

Types of Coffee:

Arabica: This type of coffee was originally indigenous to Ethiopia. Arabica is sometimes referred to as mountain coffee and represents the bulk of global coffee production.

Robusta: This type of coffee has its roots in sub-Saharan Africa and it is often used in espresso and instant coffee blends. Robusta contains greater quantities of caffeine as well as higher antioxidant levels compared to Arabica.

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Although when you think of coffee you likely think of drinking it, there are numerous other potential uses for coffee including:

Coffee Use

Coffee personal care productsInsect repellantFertilizerFlavoring

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As a major global commodity, there are numerous ways to invest in coffee. For exposure to today’s coffee markets, you can use multiple vehicles including equities, ETFs and futures.

Investing in Coffee


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Although the price of coffee may fluctuate with other soft commodities, the market has its own unique set of supply and demand factors that can influence price movement. The coffee market can be affected by numerous factors both from a local standpoint as well as a global standpoint. Some of these key issues include:

General FactorsInfluencing Price

Looking at the coffee market as a whole, it is important to keep in mind that while there are numerous issues potentially impacting prices (like those listed above), there are also other costs that can affect prices for end-users. Some of these other possible costs include:

• Transportation costs • Insurance costs • Cropstorage and interest costs • Inventory levels

Other FactorsInfluencing Price

General economic conditionsCurrency market fluctuationsWeather conditionsGlobal demandGovernment and import/export regulations

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COFFEE FUTURES

SOURCE: https://en.wikipedia.org/wiki/Coffee

Source: https://www.statista.com/statistics/268135/ranking-of-coffee-exporting-countries/


Coffee Export Volumes January 2019 by Leading Countries (in 1,000 60-kilo sacks)

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COFFEE FUTURES

Source: https://www.telegraph.co.uk/travel/maps-and-graphics/countries-that-drink-the-most-coffee/

The world’s biggest coffee drinkers


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COFFEE FUTURES

37,500 poundsContract Unit

U.S. dollars and cents per poundPrice Quotation

Sunday - Friday 6:00 p.m. - 5:00 p.m. (5:00 p.m. - 4:00 p.m. CT) with a 60-minute break each day beginning at 5:00 p.m.

(4:00 p.m. CT)Trading Hours

Contract SpecificationsCME GROUP

0.0005 per pound = $18.75Minimum Price Fluctuation

23 monthly contracts listed in the Mar, May, Jul, Sep, Dec cycleListed Contracts

Financially SettledSettlement Method

Trading terminates on the 8th last business day of the contract month.Termination Of Trading

Product Code CME Globex: KT

CME ClearPort: KT

Clearing: KT

Nymex Coffee Settlement ProceduresSettlement Procedures

NYMEX Position LimitsPosition Limits

NYMEX 931Exchange Rulebook

Block Minimum ThresholdsBlock Minimum

Price LimitsPrice Limit or Circuit

Quote Vendor Symbols ListingVendor Codes

Source: https://www.cmegroup.com/trading/agricultural/softs/coffee_contract_specifications.html as of 4/1/19



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COCOA FUTURESCocoa: An Overview

Many of the world’s tastiest treats, holiday candies and desserts are derived from or contain cocoa.

Cocoa is widely used in the production of food and beverages, and is a major component of many types of candy and chocolate. The possible uses for cocoa don’t stop there, however. This commodity can also be used for:

Cocoa Use

Production of cocoa butterAnimal feedPotashJams and marmaladesMulch

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As a global commodity, the cocoa market may attract not only those needing to hedge but speculators as well. There are numerous ways to gain exposure to the cocoa market. Cocoa investments can potentially be made using cocoa producer stocks, cocoa-based ETFs or futures and options contracts.

Investing in Cocoa

Although cocoa can be enjoyed in many different forms, it also has an equally rich history. The cacao tree originated in Central America as well as in parts of Mexico. Cacao trees only grow in very specific geographic regions, and today almost 70 percent of the global cocoa crop comes from West Africa. Just as cocoa was an important commodity in the past, it is a vital component today in countless foods, beverages and other products.


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The cocoa market can be driven by numerous factors, including but not limited to:


General economic conditionsSeasonalityInternational politicsWeatherSupply and demand

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COCOA FUTURES


Harvesting costsTransportationInsuranceStorageEmerging market demand

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Source: https://www.icco.org/about-us/icco-news/405-february-2019-quarterly-bulletin-of-cocoa-statistics.html

Summary of revised estimates


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COCOA FUTURES

10 metric tonsContract Unit

U.S. Dollars per tonPrice Quotation

CME Globex:

Sunday - Friday 6:00 p.m. - 5:00 p.m. (5:00 p.m. - 4:00 p.m. Chicago Time/CT) with a 60-

minute break each day beginning at 5:00 p.m. (4:00 p.m. CT)

Trading Hours

Contract SpecificationsCME GROUP

CME ClearPort:



$1.00 per tonMinimum Price Fluctuation

Trading is conducted in the March, May, July, September, and December cycle for the next 23 months.Listed Contracts


Trading terminates on the day immediately preceding the first notice day of the corresponding

trading month of Cocoa futures at ICE Futures U.S.Termination Of Trading

Product Code CME Globex: CJ

CME ClearPort: CJ

Clearing: CJ

Nymex Cocoa Settlement ProceduresSettlement Procedures






Source: https://www.cmegroup.com/trading/agricultural/softs/cocoa_contract_specifications.html as of 4/1/19



09

SUGAR FUTURESSugar: An Overview

Sugar is a generalized term referring to carbohydrates composed of hydrogen, oxygen and carbon. Sugar is found in the tissue of many types of plants, but only sugarcane and sugar beet contain a high enough concentration for extraction.

Types of Sugar:

Regular or white sugar: This sugar is the type found in sugar bowls and commonly used in food preparation.

Fruit sugar: This type of sugar is finer than regular sugar and has a smaller crystal size. It is regularly used in dry mixes.

Baker’s special sugar: With an even finer crystal, this type of sugar was developed specifically for baking.

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Sugar is regularly used in cooking and baking. Some specific uses include:

Sugar Use

Making SweetnersBeverage food processingAs a preservativeMaking of rumChewing gum productionDecorative table sugarsSugar cubesSyrups

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The sugar trade has been around for quite some time. As a major component of modern baking and food production, there are numerous vehicles that can potentially be used to invest in sugar. Some of these vehicles include producer stocks, sugar-based ETFs and sugar futures.

Investing in Sugar

Sugar comes in various forms including monosaccharides, disaccharides and oligosaccharides. According to the sugar association, some types of sugar are used strictly by professional bakers and the food industry, and may not be available to retail consumers in the grocery store. Some of the common type of sugar include:


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General economic conditionsCurrency marketsWeather conditionsGeographic variationsSupply and demand

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SUGAR FUTURES

2010 2011 2010 2011 2014 2015 2016 2017 2018 2019 2020

211,5

201,5

191,5

181,5

171,5

161,5

20

10

0

EU sugar productionquotas : 13.3 mio tons

EU sugar export limit :1.37 mio tons


Transporation costsStorage and interest costsInsurance costsEmerging market demand

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Source: https://www.statista.com/statistics/249679/total-production-of-sugar-worldwide/

Evolution of global demandfor sugar (mio tons)

Source: OECD/FAO Agricultural Outlook 2011-2020, page 122. In addition to strong demand, the stock-to-use ratio ofsugar will decline by 28% over the 2007-2020 period, from 46% to 33%.


Sugar Production Worldwide from 2009/10 to 2018/19

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SUGAR FUTURES

U.S. production is forecast down 3 percent to 8.2 million tons. Imports at 2.5 million tons are down 14.5 percent based on projected quota programs and the calculation of U.S. Needs, as defined in the antidumping and countervailing duties suspension agreements. Consumption is forecast relatively flat but stocks will decline.

USDA 2018/2019 Sugar Overview


Source: https://apps.fas.usda.gov/psdonline/circulars/sugar.pdf

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SUGAR FUTURES

112,000 poundsContract Unit

U.S. Dollars per poundPrice Quotation

CME Globex:



Trading Hours

No. 11 Sugar Futures Contract SpecificationsCME GROUP

CME ClearPort:



$0.0001 per poundMinimum Price Fluctuation

Trading is conducted in the March, May, July, and October cycle for the next 24 months.Listed Contracts


Trading terminates on the day immediately preceding the first notice day of the corresponding

trading month of Sugar No. 11 futures at ICE Futures U.S.Termination Of Trading

Product Code CME Globex: YO

CME ClearPort: YO

Clearing: YO

Sugar 11 Future Settlement ProceduresSettlement Procedures






Source: https://www.cmegroup.com/trading/agricultural/softs/sugar-no11_contract_specifications.html as of 4/1/19



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introduction to soft commodity futures€¦ · as a global commodity, the cocoa market may attract...

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