At a time when volatility is the order of the day in international markets, this coverage or hedge has become an indispensable tool for any product that is exported and depends on international prices.
Such is the case of coffee, which producers may have to sell at a lower price than the one they would like if the price in the international market changes.
Hedges, financial instruments that are similar to insurance, allow the coffee producer to ensure a sale price which will not change even if the international price falls below the agreed price.
In this way, the coffee producer can project his income and pay creditors safely without the risk that their harvest’s sale price will vary and therefore change their revenue projections.
In his opinion piece in laprensa.com.ni, Edwin Ruiz José González, states: "Remember that this is insurance, and if it reaches maturity and the price is above the price you chose, you will not recover your investment in this insurance. But if that happens, you would be fixed at a better price than that of the PUT.
The best time to buy insurance is when the price is rising, then you must accept the decision to take the price of the PUT - which of course must be below the current price - in attachment to their budget, not forgetting that the unit price shown in the options, should be multiplied by 375 to cover a batch. The option price is affected by several variables, but basically consists of: Intrinsic value + time value."
Source: laprensa.com.ni
More on this topic
July 2011
In an attempt to attract more customers banks are diversifying their product portfolios.
One example is the Agromercantil Bank (Bam) who will soon launch a product called 'Hazlo sencillo' (Make it Simple), which will be accessible to the institution's debit card users. "The service will consist of rounding off cardholder's accounts and transferring the balance to a small savings account, where the owner will earn interest on those savings.", said the general manager of the institution, Luis Fernando Caceres, in an article in Siglo21.com.gt
January 2009
Micro-insurance and insurance banks are some of the new services that the companies hope to offer in the short term.
Elheraldo.hn reports on its website: "For the manager of the Honduras Chamber of Insurance Companies (Cahda), Jose Moncada, the strategy of the local industry is to use the banks' platform of clients to acquire other types of coverages.
April 2011
Plantation owners awaiting further prices increases on international markets are stockpiling grain.
Statements by Rodolfo Trampe, director of Mexico's Coffee Production chain, given to Reuters News Agency show his concern at the fall in exports, which this period are 25% below last.
November 2010
According Anacafé, international grain buyers are delaying their purchases, waiting for prices to fall.
The international price of coffee is at record levels above $ 210 per bag. Directors of the National Coffee Association (Anacafe) explained that international buyers are expecting prices to fall and added that producers are finding it difficult to sell the product at these prices in the global market.
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