The interdependence of Coffee spot and futures markets by John M . Fry

Coffee is both an important source of export revenue for developing countries and the underlying asset for the largest futures markets in soft commodities. This paper examines the interdependence of these spot and futures markets, with particular emphasis on the effect futures trading activity, especially speculative behaviour, has on the price risk in spot markets. We identify change points associated with particularly poor harvests and modifications made to the underlying futures contract on one exchange. Findings indicate that spot and futures markets for coffee are indeed interdependent. However, futures markets for coffee appear to be increasingly driven by risks associated with the underlying spot markets.