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ينطوي التداول في الأسواق المالية على مخاطر كبيرة من الخسارة قد تتجاوز الودائع وقد لا تكون مناسبةً لجميع المستثمرين.
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ينطوي التداول في الأسواق المالية على مخاطر كبيرة من الخسارة قد تتجاوز الودائع وقد لا تكون مناسبةً لجميع المستثمرين.
قبل التداول‎، يُرجى التأكد من من الاستيعاب الكامل للمخاطر المرافقة للتداول

Thursday, December 09, 2021

Coffee Arabica at Decade High

تم إعداد هذا المنشور من قبل سنشري للاستشارات

Coffee Arabica at  Decade High
Coffee Arabica at Decade High

* Trading in financial market carries risk and can result in loss of capital.
* This performance is only observed with historical backtests and not traded by the company.


The product and investment ideas do not consider the risk profile and financial position of the recipient and may not be suitable for everyone. Trading in financial markets and use of margin involves a significant risk of loss, which can exceed deposits. Please read the complete disclaimer carefully.

Risks & Assumptions

The structure is based on options buying & selling strategy.
Option prices and the corresponding payoff are as of expiry & for representative purposes only. Going ahead, as the commodity price moves in either direction, the final payoff will change accordingly.
The assumption of receipt of the initial coupon or the initial debit cost is based on the option premiums available at the time of structure creation. This may vary at the actual execution time depending on the corresponding option prices and implied volatility.
Numbers given below for the P & L are on a gross basis (without considering any transaction charges).

What is driving the prices?

Coffee prices rose to a decade high, as the coffee market as a whole swung from a surplus to a deficit this year. Arabica-- the higher-quality bean, was sitting above $2.40 per pound, more than double what it was at the start of this year. Factors that have hit prices for the bean, including shipping shortages and weather, are also hitting everything that goes into that cup—from packaging materials to labor costs to the energy cost involved in shipping and roasting coffee. Uncertainty also stems from exporting countries such as Ethiopia, which is on the brink of a civil war, and Vietnam—the exporter of Robusta, which is seeing a rise in Covid-19 cases that could hit production.

Arabica remains supported by expectations output in top producer Brazil will slide this season and next following the news that Brazil was hit by both dry weather and frost this past season. Additionally, there is little supply outside Brazil to fill in the gap. Output in Central America, which produces some 15% of the world's Arabica, is expected to fall this season amid a resurgence of the 'Roya' coffee leaf rust disease.

The rationale for the trade

Total exports by exporting countries

0ct-20 0ct-21 % change October
2021/22 % change
TOTAL 10,127 9,678 -4.4% 10,127 9,678 -4.4%
Arabicas 6,763 6,166 -8.8% 6,763 6,166 -8.8%
Colombian milds 1,204 1,068 -11.3% 1,204 1,068 -11.3%
Other Milds 1,427 1,482 3.9% 1,427 1,482 3.9%
Brazilian Naturals 4,132 3,615 -12.5% 4,132 3,615 -12.5%
Robustas 3,364 3,513 4.4% 3,364 3,513 4.4%

Lower Exports:

Estimates of total production for the coffee year 2020/21 remain unchanged at 169.64 million bags. On the other hand, world coffee consumption is assessed marginally up in volume, now estimated to have increased to 167.67 million bags in 2020/21 compared to 164.53 million bags for the coffee year 2019/20. The gap production consumption is therefore reducing to 1.97 million bags. Owing to supply chain bottlenecks and harsh weather conditions, exports of all forms of coffee in October 2021 totaled 9.68 million bags, down 4.4% compared to 10.13 million bags in October 2020. In terms of regional performance during the first month of the coffee year 2021/22, exports by Brazil decreased sharply at 23.8% to 3.43 million bags from 4.50 million bags in 2020/21.

Source of Statictics: Coffee Market Report, November 2021, International Coffee Organisation

Decade High Price:


Data Source: Bloomberg

How to capitalize on the opportunity?

1. Long a Coffee Arabica March 2022 Futures Contract – This will enable to capitalize on the expected surge in Coffee Arabica.

Long Coffee Arabica March-22 Future Contract
Current Price $2.33
Units 10,000
Total Amount $23,300
Estimated Margin: $2,330

*Margins are calculated as per the CMC platform

2. Bull Call Spread – Long ATM Call and Short OTM put on Coffee Arabica Mar- 22 futures. The strategy allows for upside at a cost.

Bull Call Spread
Long Call (At the Money)
Premium $0.136
Short Call (Out of the Money)
Premium $0.0454
Net Premium Outflow $0.0906
Units 37,500
Total Outflow ($3,397.50)

Return from Strategy 2

Commodity Price on Expiry P/L after multipler Return %
$2.35 (3,397.5) -3.78%
$2.40 (1,522.5) -1.69%
$2.45 352.5 0.39%
$2.50 2,227.5 2.47%
$2.55 4,102.5 4.56%
$2.60 5,977.5 6.64%
$2.65 7,852.5 8.72%
$2.70 9,727.5 10.81%
$2.75 9,727.5 10.81%

Payoffs from Strategy 2

Risks and Assumptions for Back-tested trading strategies
The risks and assumptions listed here are not intended to be an exhaustive summary of all the risks and assumptions involved.
The strategy might suffer from look-ahead bias which occurs due to the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. This can lead to inaccurate results in the study or simulation.
Future price movements may not be exactly the same as the historical price movements and this could lead to variation in performance.
Testing can sometimes lead to over-optimization. This is a condition where performance results are tuned so high to the past they are no longer as accurate in the future.
The model assumes no slippages in trading. Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed.
Drawdowns in actual trading can be higher than the tested system and losses could be significant in the event of leverage.
Unforeseen events can lead to variation in performance from the tested trading strategy.
The tested result has been computed with price feeds available from Bloomberg.
The testing environment has not considered transaction or any other costs.
Trading indicators used for the purpose of testing has been provided by Bloomberg.
The strategy might suffer from data mining fallacy, selection bias and backfill bias.

Data Source: Bloomberg
Data as of : 09/12/2021

Arun Leslie John
Chief Market Analyst

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