It may do because backwardation* usually encourages the
holders of surplus (unsold) stocks to supply them to the spot or
cash market. Holders in producing countries looking to
benefit from higher spot or nearby prices abroad will obviously try
to sell/ship as quickly as possible. This will increase demand for
trucking and shipping space and, in extreme cases, may cause
bottlenecks. *Backwardation: a market condition in which futures
prices are lower in the distant delivery months than in the near or
nearby delivery months.
To expand on this the following…
Exporters holding stocks will of course try to benefit from the
higher nearby price(s). And, if the roasters refuse to follow the
backwardation trend, meaning there is no demand for physicals at
these prices, then the futures market in fact becomes the best
buyer… Exporters will therefore try to sell for quick shipment that
will enable coffee to be tendered against the higher priced nearby
futures position(s). In this connection see also topics 08.09.04
and 08.09.05 in the Guide itself.
This pressure may result in a lack of shipping space: shipping
lines cannot suddenly provide more vessels because of a
temporary spike in demand. It can be very frustrating for
exporters that they cannot actually get the goods to a suitable
delivery point from where these could be tendered against the
futures market. Alternatively, if the backwardation is caused by
unusually high roaster demand for nearby delivery, the same problem
may arise. Now exporters can easily get the physical business but,
again, they may not be able to get the shipping space (or even
empty containers) because all has been taken already, particularly
in smaller (feeder) ports. And sales for later shipment will of
course have to be priced against more distant and therefore lower
priced futures positions… Please see section 09.02 that discusses
selling physicals against futures positions for more on this.
Modern shipping schedules are increasingly like train
timetables: routes and port calling dates are set months in advance
and cannot be altered at whim. In any case there are no 'spare'
container vessels making it difficult to introduce 'one off'
changes. So yes, backwardation as currently the case in the robusta
market (early August 2006) can impact on logistics…
Another potential consequence is that growers/traders rushing to
'catch' the higher price for earlier delivery sometimes supply
lower quality. This can result in logistical problems of a
different kind for an exporter, for example when the moisture
content is too high and coffee has to undergo final drying before
it can be exported.
Posted 08 August 2006