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“Coffee prices have historically been extremely volatile, and in order for coffee businesses to remain profitable, especially in Colombia and Brazil, they need to secure the best possible exchange rate,” said Frederick W. Schoenhut, NYBOT Chairman. “Our peso/dollar and real/dollar contracts give the coffee industry exactly what it needs – an opportunity to hedge currency exposure and protect against any adverse exchange rate movements.”
The historic and implied volatility of coffee prices ranks in the highest range for all commodities -- a 20 year average of nearly 40% -- resulting in considerable risk assumed by the Colombian and Brazilian coffee industries. Sugar No. 11sm (symbol SB), NYBOT’s largest market, has also experienced substantial volatility in recent months. Risk management for hedgers and investors in the coffee and sugar markets is very critical in such a volatile marketplace. Sugar and coffee producers and others in the marketing chain in Colombia and Brazil need to be aware of this exposure and manage the exchange rate risk of the Colombian peso and the Brazilian real as it fluctuates against the U.S. dollar. For example, the 90-day historical volatility of the Colombian peso/U.S. dollar is 9.1% and the recent exchange rate fluctuated by an average of 6.34%. The recent history of the Brazilian real had quarterly exchange rate fluctuation by an average of 12.62% and volatility of 8.5%.
The peso/dollar and real/dollar currency cross-rate futures contracts will have all twelve months listed for trading (one contract for each month). The contracts will be cash settled in U.S. dollars. The equivalent U.S. dollar amount of both new currency contracts is very close to the notional value for the NYBOT coffee contract, making both currency contracts a precise hedge for currency exposure (contract specifications below).
Since 1882, NYBOT has been a central market place for the coffee industry and today it is the exclusive market for Coffee “C” futures and options contracts to discover the benchmark price for Arabica coffee and manage primary product risk. The NYBOT markets have also provided the benchmark for cotton (1870), sugar (1916), cocoa (1925) and orange juice (1966). NYBOT’s agricultural markets have experienced record levels of trading in 2006 and the increased usage of these contracts by an expanding global constituency increases the importance of hedging currency risk.
The NYBOT’s currency products division, which was established in 1985, is the home to a variety of currency futures and options on futures, including Euro-based, British pound-based, Japanese yen-based and U.S. dollar-paired, currency cross-rate contracts, as well as the exclusive market for futures and options based on the U.S. Dollar Index® (USDX®, symbol DX), and the FINEX Euro Currency Index (symbol E). Year-to-date volumes have also been very substantial in the currency division, with currency futures volume totaling an 8% increase, and currency options volume tallying a 19% jump.
The New York Board of Trade (NYBOT) is New York’s original futures exchange, where the world trades food, fiber and financial products. For well over a century, the New York Board of Trade has provided reliability, integrity and security in a global marketplace for cocoa, coffee, cotton, ethanol, orange juice, wood pulp and sugar, as well as currency and index futures and options. Information about the New York Board of Trade can be found at www.nybot.com and www.nybotlive.com. To learn more about New York Board of Trade Futures & Options for Kids, the Exchange’s non-profit group, please go to www.futuresandoptionsforkids.org.
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Contract Specifications
Beginning January 12, 2007, the Exchange will list for trading Cash-Settled Currency Futures Contracts on two currency pairs:
Colombia peso - US$ (Col. peso - dollar)
Brazil real - US$ (real - dollar)
The first month listed for trading for both pairs will be the March 2007 futures contract.
The Contracts will be cash-settled in US dollars and will trade in each of the twelve calendar months.
Key terms are:
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Minimum |
Minimum |
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Currency |
Contract |
Price |
Tick |
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Pair |
Size |
Fluctuation |
Value |
Settlement |
Symbol |
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Colombia peso - US$ |
100,000,000 pesos |
0.0000001 |
10 US$ |
Cash |
CU |
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Brazil real - US$ |
100,000 reals |
0.00005 |
5 US$ |
Cash |
BX |
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The Last Trading Day will be:
Colombia peso - US$: The second to last business day of the month for the Central Bank of Colombia preceding the contract month (i.e. for the March ’07 contract the Last Trade Day will be February 27).
Brazil real - US$: The last business day of the month for the Central Bank of Brazil preceding the contract month (i.e. for the March ’07 contract the Last Trade Day will be February 28).
