“Price squeezing” (price squeezing) is the phenomenon of island prices in the market when the price of coffee delivered near the month is higher than the price for the far month.
Price also known as inversion.
Normally, the spot price (now March) is lower than the price of the delivery month. The difference in value is explained firstly as supply-demand for normal delivery months, and the second is more expensive than to help the business world have a sum of money to cover expenses such as storage and depreciation. shortage… for inventory of further months.
But yesterday, prices were no longer in that order, but were reversed. As the name of the phenomenon, the price of the near month (now March) is higher than the price of the distant month (May). When closing, the price in March 2012 stood at 1,950 USD / ton, higher than the closing price in May at 1,930 USD / ton.
The phenomenon that the price of a reversal or in the market is called “squeezed” is explained that due to the lack of spot goods, the spot price increases sharply.
The reason for the spin price and the possible phenomenon?
When this phenomenon occurs, traders take full advantage of the goods they have in hand, such as in bonded warehouses, immediately bring them to European warehouses to take advantage of them to sell to the Liffe NYSE robusta futures market per month. spot spot prices higher than the following months.
Except for shipments that have long-term commitments with customers who buy far away, both without storage costs and at a lower price later on. Therefore, you will see that if the spot price continues to be high and higher and higher than the following month, trading firms will take advantage of the maximum amount of goods delivered from the warehouse of production water to be ready at the port. have Liffe stock to sell immediately if the price is favorable.
Remember in the transition between the first quarter and the second quarter of last year, sometimes prices “squeezed” to hundreds of dollars (see chart above) and robusta goods of Vietnam moved to Liffe warehouses incessantly, sometimes inventory for quality certified goods Liffe NYSE (certs) reached nearly 420,000 tons, which is a record high level of inventories of all time.
Quote reposted from the article Coffee futures prices are “squeezed” by author Nguyen Quang posted on Sgtimes.vn
See also: What do farmers do when coffee prices are squeezed?
