Accompanying this post is the latest chart from ICE relating to carrying costs. The cost per lb./month varies as seen but considering that most coffee is stored in Antwerp we should consider this location in any storage cost estimate. Even in Antwerp alone the cost varies. The average cost is $1.07 per lb./mo for Antwerp. However, delivery is generally avoided not only because itís costly but is cumbersome and is not as lucrative as physical trading against futures, imo. The few deliveries that we see are of a quality and growth that the buyers expect and have a market for. Otherwise, the greater percentage of deliveries are made by means of EFPs, as we saw in the last COT report.
Any activity that takes place after FND, when the OI in the front month is very low, is insignificant. It may appear like a squeeze, or a glut, but it is mostly a one lot market moving a spread price without any real interest. In all the years that I have been trading coffee, I can safely say the FND spread is not even looked at by traders when the OI has shrunk.
Prior to FND we have the roll. The DecMar behaved much the same as all front month spreads have been behaving. The OI in it is so crowded by different sectors, as they anticipate funds rolling or have a some other anticipation of direction, that the effect is a drop in volatility. CSO hedging prior to expiration additionally reduces volatility.
Part 2 will focus on forward spreads. I donít know who else in the forum is interested in spreads but please comment if you do.
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