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Wednesday, May 22, 2002

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Coffee bourse records zero volume turnover

M.R. Subramani


FOR the first time since its inception in June 1998, the Coffee Futures Exchange in Bangalore has gone without a single contract being traded during the last two days.

"No contracts were registered at the exchange yesterday. Today too, nothing has been traded," trade sources told Business Line.

When contacted, the Coffee Futures Exchange of India Ltd (Cofei) Business Manager, Mr P.M. Narayan Bhat, said: "The volume traded has been zero. We expect this poor response to continue."

Mr Bhat cited two reasons for the exchange going without any trading volume. "One, there is uncertainty in the international market. While the Brazil Government has estimated a 29-million 60-kg bag production this year, the trade estimates it to be 45 million bags. Even if it is over 40-million bags, it will be a 40-year record."

"Secondly, the Brazil crop is expected to be hit by frost from June. Therefore, the market is unable to decide which way to go."

Traders did not want to be caught either way and, as such, even in the global market, the volume was subdued. The New York market closed flat on Monday, leading to more uncertainty in the minds of the traders.

Mr Bhat said, on the other hand, the domestic growers see potential for the prices to go up and, therefore, were not willing to sell.

"They are selling some quantity but not in the usual way. Even exports have been restricted since April," he said.

"Our members are hesitant to take positions since they feel it will not be easy to come out of it."

Mr Bhat said the situation was expected to continue until "some picture positive or negative" emerges. "Once the picture becomes clear, we can expect a huge volume turnover as we witnessed in July 2001," he said.

The volume turnover has witnessed a fall during the last 2-3 months. From an average 200 lots of 600 kg till January, the turnover declined to around 100 lots and, currently, it was less than 50 lots. This is with regard to arabica parchment and robusta cherry.

As regards trading in raw coffee, the Cofei official said: "There has been no trading in raw coffee during the last 2-3 months." Cofei was the first exchange in the world to start futures in raw coffee in June 2000.

Mr Bhat said the zero volume turnover, in the short term, would affect the bourse's earnings and liquidity. "But we are in talks with members to tackle the issue," he said.

The dip in turnover has now led Cofei to further slowing its plans to start Internet trading. "We are going slow on Internet trading. We want the volumes to improve first," Mr Bhat said.

In October 2001, Cofei decided to revert to the open outcry system after discontinuing online trading owing to poor volume and depressed prices. Cofei was conducting the online trading using the Bangalore Stock Exchange's infrastructure.

The exchange, despite the setbacks, is trying to woo small growers into its fold.

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