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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.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 16 (2004)
Issue (Month): 7 ()
Pages: 983-1002

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Handle: RePEc:wly:jintdv:v:16:y:2004:i:7:p:983-1002
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  1. 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.
  2. Neil Kellard, 2002. "Evaluating Commodity Market Efficiency: Are Cointegration Tests Appropriate?," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(3), pages 513-529.
  3. 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.
  4. 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.
  5. Boum-Jong Choe, 1990. "Commodity price forecasts and futures prices," Policy Research Working Paper Series 436, The World Bank.
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  7. Frank Ellis, 1998. "Household strategies and rural livelihood diversification," Journal of Development Studies, Taylor & Francis Journals, vol. 35(1), pages 1-38.
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