• QA 016
    How are the price differentials determined for the different origins that are tenderable against the New York C Contract?
    Not so long ago the New York Board of Trade announced that, effective with the March 2007 delivery. the discount for Burundi coffee had beeen reduced from 300 points to 100 points = 1 ct/lb. How was this reduction arrived at, and why did it not take effect immediately?
    Asked by:
    Grower - Ecuador

    Where a producing country is of the belief that it's differential merits improving, the country's coffee authorities can present a case to The New York Board of Trade - NYBOT. For example, in the case of Burundi the country has invested heavily in the construction of modern coffee washing stations. As a result the general quality of its coffee has shown notable and sustained improvement, thereby giving the country cause to make a case for review of the differential.

    NYBOT's Coffee Committee brings together industry professionals who know not only the quality but also the prices at which the different origins are traded in the physical or green coffee market, in the United States as well as in Europe. Usually, sustained quality improvement is over time evidenced by better differentials in the physical or green coffee market.

    For example, if a country can demonstrate with supporting data that the physical differential for its particular coffee has sustainably improved vis-à-vis comparable origins because of quality improvement measures and market appreciation, then it may be worthwhile for the country's coffee authorities to consider making a case. However, a successful case will rely on sufficient market data that present logical and convincing reasons for such a review.

    Changing a differential in effect means changing the delivery terms for the futures market, the C Contract. But already existing trade commitments may not be changed and so a differential change can only take effect for the first delivery month that does not have any open position. Hence, at the time of the Burundi announcement the first available trading position was March 2007 because March '05, May '05, July '05, September '05, December '05, March '06, May '06, July '06, September '06 and December '06 were then 'on the Board', i.e. being traded.

    To note that in January 2007 The New York Board of Trade (NYBOT) merged with  InterContinental Exchange (ICE) - see ICE Futures US at www.theice.com

    Formal representations for differential reviews, by a country's coffee authorities, should be addressed to: Formal representations for differential reviews or applications for inclusion in the list of tenderable origins, by a country's coffee authorities, should be addressed to: The Chairman of The ICE Futures US Coffee Committee, care of the Vice President - Product Development, One North Avenue, New York, NY  10282.

    Posted 9 May 2005

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