Coffee is one of the most highly traded commodities, second only to oil, and prices are on the rise. Coffee is frequently treated as a homogeneous product, where its price is set based on its futures contract. Yet several factors influence the price including country of origin, quality, and freshness.
Coffee blenders who are tasked with providing a uniform quality level of roasted coffee are challenged to closely monitor the origination markets to assess trends that could cause price movements. The reasons coffee companies should use next-generation CTRM software are well understood. (See "5 Reasons Coffee Companies Should Use CTRM Software.")
But for coffee traders, the times are tougher than ever and they face their own set of challenges.
To make the best trading decisions, coffee traders should know at any given point in time the average price differentials at which they have bought and sold.
coffee price differential - Difference in price between the price coffee is currently trading for on an exchange and the current local price.
The price differential is impacted by the origin as well as the global demand and supply levels for the particular coffee. For coffee traders, this presents a significant challenge: they need to know the average differentials at which they have bought and sold their product so they can make fast trading decisions.
To maximize profitability, traders need next-generation CTRM software solutions that provide real-time position and price differential data.
When moving coffee, weight losses can occur both naturally and deliberately by the shipper and these shipments need to be tracked accurately to ensure the product stays within contract tolerance. It is typical for more than half of coffee shipments to end up in weight claim settlements. Contract terms and government rules typically stipulate these claims must be made in a timely fashion.
The quality or grade of the product must also be effectively tracked to prevent losses to the business when the shipped quality of the sample does not meet the contracted quality.
Coffee trading is a high risk business because profit margins are razor thin. Traders need to carefully control price risk, credit risk, regulatory risk, and operational risk; otherwise, losses can occur.
To maximize profits, traders need to track inventory cycle days as they want to minimize the amount of time coffee stays in inventory—each additional inventory day adds additional storage costs. Traders need to focus particularly on inventories that are stuck for the longest period of time so that they can make decisions to move these along faster.
To remain profitable and protect margins, coffee traders require a next-generation CTRM software solution so they can trade effectively. Coffee companies require detailed inventory information including quality, cupping results, storage location, certification details, bag size, and crop year alongside claim settlement functionality based on weight, quality, and supplier.
Eka's InSight CM - Agriculture is a next-generation software platform that captures, analyzes, and manages physical trading, procurement, logistics, bulk handling, processing, risk, and compliance across softs, grains, feeds, edible oils, oilseeds, livestock, and other agriculture-based businesses while providing real-time scenario and intelligence capabilities to optimize decision making.