Introduction to Soft Futures SOFT COMMODITY FUTURES

FROM YOUR MORNING COFFEE AND DANISH TO YOUR HOT CHOCOLATE BY THE FIRE, SOFT COMMODITY PRODUCTS ARE A MAJOR COMPONENT OF EVERYDAY LIFE.

By understanding the fundamentals of the soft commodity product futures, traders and end-users can leverage better methods of discovery and risk management.

Coffee Futures Cocoa Futures Futures

An investment in futures contracts involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits. You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources, and other relevant circumstances. Past performance is not necessarily indicative of future results. 01 Rosenthal Collins Group, a Division of Marex Spectron COFFEE FUTURES Coffee: An Overview

Millions of people all over the globe begin each and every day with coffee. This commodity is now cultivated in over 70 countries and is a major export commodity.

Types of Coffee:

• Arabica: This type of coffee was originally indigenous to Ethiopia. Arabica is sometimes referred to as mountain coffee and represents the bulk of global coffee production.

• Robusta: This type of coffee has its roots in sub-Saharan Africa and it is often used in espresso and instant coffee blends. Robusta contains greater quantities of caffeine as well as higher antioxidant levels compared to Arabica.

Coffee Use

Although when you think of coffee you likely think of drinking it, there are numerous other potential uses for coffee including:

• Coffee personal care products • Insect repellant • Fertilizer • Flavoring

Investing in Coffee

As a major global commodity, there are numerous ways to invest in coffee. For exposure to today’s coffee markets, you can use multiple vehicles including equities, ETFs and futures.

02 Rosenthal Collins Group, a Division of Marex Spectron COFFEE FUTURES

General Factors Influencing Price

Although the price of coffee may fluctuate with other soft , the market has its own unique set of supply and demand factors that can influence price movement. The coffee market can be affected by numerous factors both from a local standpoint as well as a global standpoint. Some of these key issues include:

• General economic conditions • Currency market fluctuations • Weather conditions • Global demand • Government and import/export regulations

SOURCE: https://en.wikipedia.org/wiki/Coffee

Other Factors Influencing Price

Looking at the coffee market as a whole, it is important to keep in mind that while there are numerous issues potentially impacting (like those listed above), there are also other costs that can affect prices for end-users. Some of these other possible costs include:

• Transportation costs • Insurance costs • Cropstorage and interest costs • Inventory levels

Coffee Export Volumes January 2019 by Leading Countries (in 1,000 60-kilo sacks)

Source: https://www.statista.com/statistics/268135/ranking-of-coffee-exporting-countries/

03 Rosenthal Collins Group, a Division of Marex Spectron COFFEE FUTURES

The world’s biggest coffee drinkers

Source: https://www.telegraph.co.uk/travel/maps-and-graphics/countries-that-drink-the-most-coffee/

04 Rosenthal Collins Group, a Division of Marex Spectron COFFEE FUTURES

CME GROUP Contract Specifications

Contract Unit 37,500 pounds

Price Quotation U.S. dollars and cents per pound

Trading Hours Sunday - Friday 6:00 p.m. - 5:00 p.m. (5:00 p.m. - 4:00 p.m. CT) with a 60-minute break each day beginning at 5:00 p.m. (4:00 p.m. CT)

Minimum Price Fluctuation 0.0005 per pound = $18.75

Product Code CME Globex: KT CME ClearPort: KT Clearing: KT

Listed Contracts 23 monthly contracts listed in the Mar, May, Jul, Sep, Dec cycle

Settlement Method Financially Settled

Termination Of Trading Trading terminates on the 8th last business day of the contract month.

Settlement Procedures Nymex Coffee Settlement Procedures

Position Limits NYMEX Position Limits

Exchange Rulebook NYMEX 931

Block Minimum Block Minimum Thresholds

Price Limit or Circuit Price Limits

Vendor Codes Quote Vendor Symbols Listing

Source: https://www.cmegroup.com/trading/agricultural/softs/coffee_contract_specifications.html as of 4/1/19

An investment in futures contracts involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits. You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources, and other relevant circumstances. Past performance is not necessarily indicative of future results. 05 Rosenthal Collins Group, a Division of Marex Spectron COCOA FUTURES Cocoa: An Overview

Many of the world’s tastiest treats, holiday candies and desserts are derived from or contain cocoa.

Although cocoa can be enjoyed in many different forms, it also has an equally rich history. The cacao tree originated in Central America as well as in parts of Mexico. Cacao trees only grow in very specific geographic regions, and today almost 70 percent of the global cocoa crop comes from West Africa. Just as cocoa was an important commodity in the past, it is a vital component today in countless foods, beverages and other products.

Cocoa Use

Cocoa is widely used in the production of food and beverages, and is a major component of many types of candy and chocolate. The possible uses for cocoa don’t stop there, however. This commodity can also be used for:

• Production of cocoa butter • Animal feed • Potash • Jams and marmalades • Mulch

Investing in Cocoa

As a global commodity, the cocoa market may attract not only those needing to hedge but speculators as well. There are numerous ways to gain exposure to the cocoa market. Cocoa investments can potentially be made using cocoa producer stocks, cocoa-based ETFs or futures and options contracts.

06 Rosenthal Collins Group, a Division of Marex Spectron COCOA FUTURES

General Factors Influencing Price

The cocoa market can be driven by numerous factors, including but not limited to:

• General economic conditions • Seasonality • International politics • Weather • Supply and demand

Other Factors Influencing Price

• Harvesting costs • Transportation • Insurance • Storage • Emerging market demand

Summary of revised estimates

Source: https://www.icco.org/about-us/icco-news/405-february-2019-quarterly-bulletin-of-cocoa-statistics.html

07 Rosenthal Collins Group, a Division of Marex Spectron COCOA FUTURES

CME GROUP Contract Specifications

Contract Unit 10 metric tons

Price Quotation U.S. Dollars per ton

Trading Hours CME Globex: Sunday - Friday 6:00 p.m. - 5:00 p.m. (5:00 p.m. - 4:00 p.m. Chicago Time/CT) with a 60- minute break each day beginning at 5:00 p.m. (4:00 p.m. CT)

CME ClearPort: Sunday - Friday 6:00 p.m. - 5:00 p.m. (5:00 p.m. - 4:00 p.m. Chicago Time/CT) with a 60- minute break each day beginning at 5:00 p.m. (4:00 p.m. CT)

Minimum Price Fluctuation $1.00 per ton

Product Code CME Globex: CJ CME ClearPort: CJ Clearing: CJ

Listed Contracts Trading is conducted in the March, May, July, September, and December cycle for the next 23 months.

Settlement Method Financially Settled

Termination Of Trading Trading terminates on the day immediately preceding the first notice day of the corresponding trading month of Cocoa futures at ICE Futures U.S.

Settlement Procedures Nymex Cocoa Settlement Procedures

Position Limits NYMEX Position Limits

Exchange Rulebook NYMEX 930

Block Minimum Block Minimum Thresholds

Price Limit or Circuit Price Limits

Vendor Codes Quote Vendor Symbols Listing

Source: https://www.cmegroup.com/trading/agricultural/softs/cocoa_contract_specifications.html as of 4/1/19

An investment in futures contracts involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits. You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources, and other relevant circumstances. Past performance is not necessarily indicative of future results. 08 Rosenthal Collins Group, a Division of Marex Spectron SUGAR FUTURES Sugar: An Overview

Sugar is a generalized term referring to carbohydrates composed of hydrogen, oxygen and carbon. Sugar is found in the tissue of many types of plants, but only sugarcane and sugar beet contain a high enough concentration for extraction.

Types of Sugar:

Sugar comes in various forms including monosaccharides, disaccharides and oligosaccharides. According to the sugar association, some types of sugar are used strictly by professional bakers and the food industry, and may not be available to retail consumers in the grocery store. Some of the common type of sugar include:

• Regular or white sugar: This sugar is the type found in sugar bowls and commonly used in food preparation.

• Fruit sugar: This type of sugar is finer than regular sugar and has a smaller crystal size. It is regularly used in dry mixes.

• Baker’s special sugar: With an even finer crystal, this type of sugar was developed specifically for baking.

Sugar Use

Sugar is regularly used in cooking and baking. Some specific uses include:

• Making Sweetners • Beverage food processing • As a preservative • Making of rum • Chewing gum production • Decorative table • Sugar cubes • Syrups

Investing in Sugar

The sugar trade has been around for quite some time. As a major component of modern baking and food production, there are numerous vehicles that can potentially be used to invest in sugar. Some of these vehicles include producer stocks, sugar-based ETFs and sugar futures.

09 Rosenthal Collins Group, a Division of Marex Spectron SUGAR FUTURES

General Factors Sugar Production Worldwide from 2009/10 to 2018/19 Influencing Price

• General economic conditions • Currency markets • Weather conditions • Geographic variations • Supply and demand

Other Factors Influencing Price

• Transporation costs • Storage and interest costs • Insurance costs • Emerging market demand

Source: https://www.statista.com/statistics/249679/total-production-of-sugar-worldwide/

Evolution of global demand for sugar (mio tons)

EU sugar production 211,5 quotas : 13.3 mio tons

201,5 EU sugar export limit : 1.37 mio tons 191,5

181,5 20

171,5 10

161,5 0 2010 2011 2010 2011 2014 2015 2016 2017 2018 2019 2020

Source: OECD/FAO Agricultural Outlook 2011-2020, page 122. In addition to strong demand, the stock-to-use ratio of sugar will decline by 28% over the 2007-2020 period, from 46% to 33%.

10 Rosenthal Collins Group, a Division of Marex Spectron SUGAR FUTURES

USDA 2018/2019 Sugar Overview

U.S. production is forecast down 3 percent to 8.2 million tons. Imports at 2.5 million tons are down 14.5 percent based on projected quota programs and the calculation of U.S. Needs, as defined in the antidumping and countervailing duties suspension agreements. Consumption is forecast relatively flat but stocks will decline.

Source: https://apps.fas.usda.gov/psdonline/circulars/sugar.pdf

11 Rosenthal Collins Group, a Division of Marex Spectron SUGAR FUTURES

CME GROUP No. 11 Sugar Specifications

Contract Unit 112,000 pounds

Price Quotation U.S. Dollars per pound

Trading Hours CME Globex: Sunday - Friday 6:00 p.m. - 5:00 p.m. (5:00 p.m. - 4:00 p.m. Chicago Time/CT) with a 60- minute break each day beginning at 5:00 p.m. (4:00 p.m. CT)

CME ClearPort: Sunday - Friday 6:00 p.m. - 5:00 p.m. (5:00 p.m. - 4:00 p.m. Chicago Time/CT) with a 60- minute break each day beginning at 5:00 p.m. (4:00 p.m. CT)

Minimum Price Fluctuation $0.0001 per pound

Product Code CME Globex: YO CME ClearPort: YO Clearing: YO

Listed Contracts Trading is conducted in the March, May, July, and October cycle for the next 24 months.

Settlement Method Financially Settled

Termination Of Trading Trading terminates on the day immediately preceding the first notice day of the corresponding trading month of Sugar No. 11 futures at ICE Futures U.S.

Settlement Procedures Sugar 11 Future Settlement Procedures

Position Limits NYMEX Position Limits

Exchange Rulebook NYMEX 934

Block Minimum Block Minimum Thresholds

Price Limit or Circuit Price Limits

Vendor Codes Quote Vendor Symbols Listing

Source: https://www.cmegroup.com/trading/agricultural/softs/sugar-no11_contract_specifications.html as of 4/1/19

An investment in futures contracts involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits. You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources, and other relevant circumstances. Past performance is not necessarily indicative of future results. 12 Rosenthal Collins Group, a Division of Marex Spectron An introduction to Soft Commodity Futures

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