• Sellers need discipline!

    A PTBF sale does not mean the seller has made their price decision - that will only be the case once they fix! But many a seller has been unable to bring themselves to fix at an unattractive level, and in falling markets a good number even roll open fixations from one futures position to the next, preferring to pay the cost, usually the difference in price between the two positions plus the buyer's costs. In other words, a PTBF sale is like being a passenger in an elevator without knowing whether it is going up or down, with 'fixing' being the floor buttons. If you do not push the button you may end up somewhere unexpected.

    To avoid falling into the 'fixation trap' (an inability to decide), set internal stops to ensure that fixing takes place automatically when a certain time has elapsed or a price, up or down, is reached. Fixing orders can be given basis GTC (good till cancelled). But, as explained previously, in a very volatile and fast moving market situation the 'gap trading' phenomenon may make the timely execution of such GTC orders difficult if not impossible.

    The producer or exporter who has both the coffee and a PTBF sale (i.e. they have the differential but no base price), must appreciate that although they have eliminated the differential risk, a decision not to fix leaves them totally exposed to the market or price risk. This is not very different from straightforward speculation.

    When fixed price sales are not feasible, one simple alternative is to sell PTBF and to fix immediately, thereby fixing both the futures price and the differential that, together, make up the final sales price. Concerns such as 'are we fixing too early?' or 'what if the market goes up?' can be dealt with by also buying a call option, accepting that the cost of this comes out of the sales price for the physicals.
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