Holding the book “Managing Coffee Price Risks with Standard Contracts on the ICE Exchange” by the co-authors ThS. Nguyễn Cảnh Thọ (chief editor) and Dr. Đặng Hữu Mẫn, I felt a sense of joy.
In fact, many coffee growers and traders are already familiar with the two major coffee derivative exchanges: Robusta on London and Arabica on New York. Anyone involved in coffee production or trade in Vietnam and globally must use the prices listed on these exchanges as reference points.
The joy comes from the fact that although the authors are academic experts, the book seems to be written not only for those studying finance and commodity trading, but also for a wider audience, particularly anyone interested in coffee production, trade, and commercialization. In fact, even people involved in other commodities such as rice, cocoa, soybeans, corn, and even gold and crude oil can apply the mechanisms of these coffee derivative exchanges to their own industries.
As the title suggests, this work covers the knowledge and practical experience needed to “manage risks,” since chief editor Nguyễn Cảnh Thọ is currently the Deputy Director of the Foreign Exchange and Currency Trading Center at Sacombank. With 12 years of experience in advising solutions to reduce and prevent risks such as interest rates, exchange rates, gold-foreign currency fluctuations, and commodity trading, he has clearly gained valuable insight into the gains and losses of coffee production and trade.
The book’s structure consists of 10 chapters across 196 pages, published by the Ho Chi Minh City Economics Publishing House in the first quarter of 2020.
The first two chapters briefly explain why coffee derivative exchanges are available on the market and why industry participants should care. They also discuss the factors influencing coffee prices on exchanges and in producing countries. The authors analyze the relationship between coffee bean prices and monetary factors such as the U.S. dollar and Brazil’s reais. The interplay between monetary policy and commodities is now a crucial aspect of daily coffee trading as a commodity.
The most interesting part appears in Chapter 3, where the authors present detailed business scenarios for coffee traders, including the processes of receiving, inspecting goods, and signing contracts for “cash sales” (outright), or selling based on the price differential between the exchange rate and FOB (Free On Board) price, often referred to as “differentials.” The challenges of buying and selling based on fluctuating domestic and export prices are presented, which can sometimes lead to massive debt defaults.
Chapters 4 to 9 explain how the derivatives market works, offering a step-by-step guide for coffee traders seeking to mitigate risks through derivatives such as futures, forwards, and options. These contracts are familiar to many, but the nuances of their operation, regulations, and trading strategies are not always well-known.
The final chapter presents specific case studies for commodity traders on derivative exchanges, especially for purchase agents who tend to follow traditional practices. The authors also propose practical problems and solutions to help business owners calculate profit and loss, and create strategies to minimize risks and safeguard capital.
With 10 concise chapters packed into just under 200 pages, the authors have carefully distilled essential operations in coffee trading, illustrating what to do when not using exchanges and how to engage with the derivatives market effectively.
For a long time, coffee traders and those in other commodity industries impacted by commodity exchange markets often swing to extremes in response to either significant losses or gains.
Many industry association leaders have advised against selling coffee contracts with “differentials,” but this has been met with resistance, with members asking, “If we don’t sell this way, who will buy?”
Of course, “Managing Coffee Price Risks with Standard Contracts on the ICE Exchange” is not a magic key to solving every issue. However, it offers substantial contributions with a comprehensive yet practical approach that serves as a general advisory for coffee traders and those in the agriculture commodity business. This book is an excellent and easily understandable reference, making it one of the most valuable and accessible guides in its category.