In order to fully comprehend the situation faced by the company’s procurement
division, it is important to understand the historical coffee futures situation and the
impact changes in such prices would have upon a company utilizing futures and
hedges to minimize price fluctuations. Figure 2 provides a comparative analysis of
coffee futures prices, specifically Coffee “C”, and world ending stocks (USDA/FAS
2003 and NYBOT/CSCE). One should note that the relationship between the two
variables graphed is very similar to the relationship shown in Figure 1. However,
variation in futures prices is often more pronounced when its relationship with
other factors is examined. This may be due to the highly influential role speculation
plays in the determination of the futures price.