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Coffee futures: Role in reducing coffee producers' price risk

Mohan, Sushil and Love, James (2004) Coffee futures: Role in reducing coffee producers' price risk. Journal of International Development, 16 (7). pp. 983-1002. ISSN 0954-1748

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Abstract

The paper investigates whether coffee producers can benefit by taking coffee production/marketing decisions on the basis of coffee futures forecasts. The methodology employed is to match futures and spot prices for the coffee futures contract traded at the international commodity exchanges. Regression analysis demonstrates that changes in spot prices are not explained by changes in lagged futures prices. On the contrary, it emerges that futures prices tend to adapt to the prevailing spot prices. The deviations of the spot prices from the lagged futures prices are over 30 per cent on average and they do not follow any systematic pattern. Therefore, the hypothesis that coffee futures market information could benefit coffee producers cannot be empirically supported.