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Coffee futures: role in reducing coffee producers' price risk


  • Sushil Mohan

    (Department of Economics, University of Strathclyde, Glasgow, UK)

  • James Love

    (Department of Economics, University of Strathclyde, Glasgow, UK)


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. Copyright © 2004 John Wiley & Sons, Ltd.

Suggested Citation

  • Sushil Mohan & James Love, 2004. "Coffee futures: role in reducing coffee producers' price risk," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(7), pages 983-1002.
  • Handle: RePEc:wly:jintdv:v:16:y:2004:i:7:p:983-1002 DOI: 10.1002/jid.1158

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    References listed on IDEAS

    1. Boum-Jong Choe, 1990. "Commodity price forecasts and futures prices," Policy Research Working Paper Series 436, The World Bank.
    2. Reardon, Thomas, 1997. "Using evidence of household income diversification to inform study of the rural nonfarm labor market in Africa," World Development, Elsevier, vol. 25(5), pages 735-747, May.
    3. Just, Richard E. & Rausser, Gordon C., 1985. "Determination of the predominance of various expectations patterns in commodity futures and spot markets," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt9wv9s614, Department of Agricultural & Resource Economics, UC Berkeley.
    4. Frank Ellis, 1998. "Household strategies and rural livelihood diversification," Journal of Development Studies, Taylor & Francis Journals, vol. 35(1), pages 1-38.
    5. Neil Kellard, 2002. "Evaluating Commodity Market Efficiency: Are Cointegration Tests Appropriate?," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(3), pages 513-529.
    6. Graciela Kaminsky & Manmohan S. Kumar, 1990. "Efficiency in Commodity Futures Markets," IMF Staff Papers, Palgrave Macmillan, vol. 37(3), pages 670-699, September.
    7. Shonkwiler, J S & Maddala, G S, 1985. "Modeling Expectations of Bounded Prices: An Application to the Market for Corn," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 697-702, November.
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    Cited by:

    1. Jerry Coakley & Jian Dollery & Neil Kellard, 2011. "Long memory and structural breaks in commodity futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 31(11), pages 1076-1113, November.
    2. Baldi, Lucia & Peri, Massimo & Vandone, Daniela, 2011. "Spot and Futures Prices of Agricultural Commodities: Fundamentals and Speculation," 2011 International European Forum, February 14-18, 2011, Innsbruck-Igls, Austria 122002, International European Forum on Innovation and System Dynamics in Food Networks.
    3. Baldi, Lucia & Peri, Massimo & Vandone, Daniela, 2011. "Price Discovery in Agricultural Commodities: The Shifting Relationship Between Spot and Future Prices," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114237, European Association of Agricultural Economists.
    4. Firdu Gemech & John Struthers, 2007. "Coffee price volatility in Ethiopia: effects of market reform programmes," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(8), pages 1131-1142.
    5. John M. Fry & Baoying Lai, 2011. "The interdependence of Coffee spot and futures markets," Working Papers 2011.1, International Network for Economic Research - INFER.
    6. Tröster, Bernhard & Staritz, Cornelia, 2015. "Global commodity chains, financial markets, and local market structures: Price risks in the coffee sector in Ethiopia," Working Papers 56, Österreichische Forschungsstiftung für Internationale Entwicklung (ÖFSE) / Austrian Foundation for Development Research.

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