All About Coffee Part 62

Within three days of the serving of this notice, each disputant selects an Exchange member as his adjudicator; and these two name the third, who must be a member of the adjudicating committee. Even this decision may be appealed to the board of managers, which, if it finds the grounds of appeal good (as decided by majority vote), appoints an appeal committee of five, of whom three must be members of the board. This last committee's decision is final. No new testimony bearing on the case may be introduced after the case has been closed by the adjudicators.

Arbitration is voluntary with both parties; while adjudication is compulsory upon the application of either.

Another committee of trade importance is the spot quotation committee of five Exchange members. Each day at two o'clock, except on Sat.u.r.day, when it meets at 11:45, this committee by a majority vote establishes the official daily market quotation of No. 7 coffee. There is likewise a committee on quotations of futures. This committee of five meets daily "immediately after the first call and at the close of the Exchange and reports to the superintendent the tone and price of the contract market, to be posted on the blackboard and transmitted to other Exchanges and commercial bodies."

A committee of five on trade and statistics has the important function of reporting to the board as to regulations for the "purchase, sale, transportation and custody of merchandise," and it attempts to establish uniformity in such matters between different markets. It has charge also of "all matters pertaining to the supply of newspapers, market reports, telegraphic and statistical information for the use of the Exchange. In the early 80's the Exchange abolished the old method of keeping coffee statistics, and the basis then adopted has since been accepted by all the large coffee markets of the world."

The minimum rates of commission on coffee "per contract of 250 bags, for members of the Exchange residing in the United States, are based upon a price" as follows, quoting from the Exchange bylaws adopted June 8, 1920:

COFFEE EXCHANGE COMMISSION RATES (Per contract of 250 bags)

Floor Commission brokerage for buying for buying or selling or selling Below 10 cents $6.25 $1.50 10 cents up to 19.99 cents 7.50 1.75 20 cents and above 10.00 2.00

For non-members residing within the United States, double the above rates of commission shall be charged.

For members and non-members residing outside of the United States a commission of $2.50 shall be charged in addition to the above rates.

Whenever before thirty minutes after the close of the exchange a member gives to another member for clearance purchases and sales of contracts corresponding in all respects except as to price, made during the day by himself or for his account _when present on the floor_ of the Exchange, a charge for each contract shall be made equal to the corresponding floor brokerage rate for buying and selling, in addition to any floor brokerage incurred.

Members procuring business for other members may, by agreement, be ent.i.tled to one-half the commission rates for non-members prescribed in this Section, less the corresponding brokerage charge, whether paid or not.

When a transferable notice is given or received by a customer in fulfillment of a contract the brokerage in that case shall be not less than one-half of the corresponding buying or selling commission prescribed in Section 103.

Other committees are the finance committee (two) to audit bills and claims against the Exchange, to direct deposits and investments, and to audit the monthly and yearly accounts of the treasurer; a law committee (three), to deal with matters of legislation; a members.h.i.+p and floor committee (five); and a nominating committee (five). Organized as above outlined, and with a well established code of trade rules, the Exchange annually transacts a large number of sales in a business-like way.

There is considerable trading in future contracts; and a standard form has been adopted by the Exchange. No future contracts are valid unless they are made in the following form:

BRAZILIAN COFFEE--NOT SANTOS Office of _____________ New York__________ 19__ Sold for M_______________________ To M_______________________

Thirty-two thousand five hundred pounds in about 250 bags coffee, growth of North, South or Central America, West Indies or East Indies, excepting coffee known as "Robusta," and also any coffee of new or unknown growth, deliverable from licensed warehouse in the port of New York, between the first and last days of ________ next, inclusive. The delivery within such time to be at seller's option, upon a notice to buyer of either five, six or seven days, as may be prescribed by the trade rules. The coffee to be of any grade, from No. 8 to No. 1 inclusive (no coffee to grade below No. 8) provided the average grade of Brazilian coffees shall not be above No. 3.

Nothing in this contract, however, shall be construed as prohibiting a delivery averaging above No. 3 at the No. 3 grade. At the rate of __________ cents per pound for No. 7, with additions or deductions for other grades according to the rates of the New York Coffee and Sugar Exchange, Inc., existing on the afternoon of the day previous to the date of the notice of delivery. Either party to have the right to call for margins as the variations of the market for like deliveries may warrant, which margins shall be kept good.

This contract is made in view of, and in all respect subject to the rules and conditions established by the New York Coffee and Sugar Exchange, Inc., and in full accordance with section 102 of the bylaws.

_____________________________ Brokers

Across the face is the following:

For and in consideration of one dollar to __________________ in hand paid, receipt whereof is hereby acknowledged, ______________ accept this contract with all its obligations and conditions.

All deliveries on such future contracts must be made from licensed warehouses. There is a separate "to arrive contract"; but this likewise requires delivery at a licensed warehouse, unless the buyer and the seller have a mutual understanding to deliver the coffee from dock or ex-s.h.i.+p. Margins to protect the contract may be called for by either party. The largest deposit for margins was made in 1904, when $22,661,710 was deposited with the superintendent as required by the Exchange rules.

The basic grade in a future sale is No. 7; but variations are provided as follows: 30 points for Rio, Victoria, and Bahia of all grades between 7 and 1, and of 50 points between 7 and 8; 50 points is allowed on Santos and all other coffees except between grades 1 and 2 and 2 and 3 Santos, which are allowed 30 points. Thus the buyer and the seller when entering upon a transaction know exactly what the difference will be between the standard No. 7 and the coffee that can be delivered. The right to deliver any grade in a future transaction has done much to lessen the probability of corners in coffee; but this protection is further given by the stringent rule that the maximum fluctuations on the Exchange can be only two cents a pound on coffee in one day and one cent on sugar. If greater changes should threaten, the Exchange operations would automatically cease.

False or fict.i.tious sales are prohibited, and all contracts must be reported to the superintendent. All contracts are binding and call for actual delivery.

The future contract, besides being used for the delivery of coffee during stated months in the future at a given price, is also used for hedging purposes. As in the grain and cotton markets, dealers protect themselves against price fluctuations by hedging in the future market.

Importers, for instance, when purchasing coffee abroad, frequently sell an equal amount for future delivery on the Exchange. When the time for delivery arrives, it is simply a question of calculation of the market conditions whether it is more advantageous to repurchase the sales made as a hedge, or as a kind of insurance to protect themselves against loss, and free the coffee so engaged, or to make delivery of the coffee as it comes in.

The board of managers has power to close the Exchange or to suspend trading on such days or parts of days as would in their judgment be for the Exchange's best interest.

The Clearing a.s.sociation is a recent outgrowth of the Exchange, and is composed exclusively of Exchange members. Every member has to bring his contracts up to market closing every night, either by making a deposit with the a.s.sociation to cover his balances, or by withdrawing in case he should be over. Members deposit $15,000 at the time of joining as a guaranty fund; and if the surplus is not sufficient to take care of balances, the bylaws provide for the levying of a.s.sessments.

The daily quotations on the coffee exchanges of New York, Havre, and (before the war) of Hamburg, determined to a large extent the price of green coffee the world over. The prices prevailing on the New York Coffee and Sugar Exchange are studied by coffee traders in all countries, the fluctuations being reflected in foreign markets as the reports come from the United States. Quotations are cabled from one great market to another; and as each must heed those of the others to some extent, the coffee trade thus obtains a world price, and the effect on supply and demand is universal rather than local, as would be the case if quotations were not exchanged.

In 1921 the Exchange adopted an amendment to the trade rules, and abolished the one day transferable notice for both coffee and sugar.

_Foreign Coffee Quotations_

Brazil coffee cable quotations are the market prices, in Rio or Santos, of ten kilograms of coffee, the price being stated in milreis, the monetary unit of Brazil money. The basic grade of coffee at Rio is the No. 7 of the New York Coffee Exchange; and at Santos, the international standard of good average ("g. a.") Santos. One kilogram (often written kilo, or abbreviated to K.) is equal to two and one-fifth pounds; and the ten-kilogram standard of quant.i.ty is, therefore, equivalent to twenty-two pounds, or just one-sixth of a standard Brazil bag.

The money value is not so simple, since Brazilian paper currency is unstable; and the milreis quotation means nothing unless it is considered in connection with the rate of exchange for the same day, i.e., the current gold value of the milreis. This gold value is always given with the daily quotations from Brazil, and is expressed in British pence. The par value of the milreis (1000 reis) is 54.6 cents (gold) of United States money; but its present actual value is only about 15 cents, and it has been as low as 11-1/4 cents. Our dollar sign is used to denote milreis, placing it after the whole number, and before the fractional part expressed in one-thousandths. Thus, 8-1/4 milreis would be written 8$250 RS.

Suppose, for example, a Rio quotation is given at 8$400, with exchange at 7-1/2 d. This means that 22 pounds of coffee have a gold value of 63 British pence (8.4 7-1/2 = 63.0), or 5/3, as the Englishman would write it, which is equal to $1.27-1/2, making the coffee worth 5.8 cents per pound. Of course the person familiar with Brazil quotations will not need to make this reduction to the pound-cent term in order to understand the figures. They will have a proper relative meaning to him in their original form; and it must not be overlooked that it is in this form only that they express correctly the value of the coffee in Brazil.

It may make a great difference to the Brazilian planter or exporter whether an increased gold value of his coffee arises through a higher milreis bid or an appreciated exchange, simply on account of local currency considerations. That is to say, the purchasing power of a milreis in Brazil will not necessarily vary exactly as the rate of exchange on London.

London quotations are made in s.h.i.+llings and pence, on one hundred-weight (cwt) of coffee. This "cwt" is not 100 pounds but 112 pounds, one twentieth of the English ton (our long ton) of 2,240 pounds. And in all English coffee statistics the coffee quant.i.ties are expressed in this ton. A London quotation of 30/9 (30 s.h.i.+llings and 9 pence) for example, is equivalent to $7.44 for 112 pounds of coffee, or 6.64 cents per pound at the normal rate of exchange, $4.80 to $4.86 the pound sterling.

At Havre, the coffee price is given in francs, on a quant.i.ty of 50 kilograms. This is 110 pounds and almost as much, therefore, as the British cwt. In normal times the franc is equal to 19.3 cents. A French quotation of 37-1/2, for instance, means, therefore, $7.19 for 110 pounds of coffee, or 6.53 cents per pound.

The Hamburg quotation (formerly from Brazil per fifty kilos) is made on one pound German, equal to 1/2 kilogram, and is expressed in pfennigs.

One pfennig is one-hundredth of a mark, and the mark once was equal to 23.8 cents. A German quotation of, say, 31, means, therefore, 7.38 cents (31 .238 = 7.378) for 1.1 pounds, or 6.71 cents per pound.

_Three Kinds of Brokers_

In the coffee trade there are three kinds of brokers--floor, spot, and cost and freight.

Floor brokers are those who buy and sell options on the Coffee Exchange for a fixed consideration per lot of 250 bags. The coffee commission rate put into effect June 8, 1920, for round term (buying and selling) by the New York Coffee Exchange was as follows:

COMMISSION RATE ON 250 BAGS

(For Round Term--Buying and Selling)

Up to 10 to 9.99c 19.99c 20c & up per lb. per lb. per lb.

Members $12.50 $15.00 $20.00 Non-members 25.00 30.00 40.00 Foreign members 17.50 20.00 25.00 Foreign non-members 30.00 35.00 45.00 Floor brokerage-- Buying or selling 1.50 1.75 2.00

There is at present (1922) a stamp tax of two cents on each hundred dollars value, or fraction thereof, figured on each separate lot.

[Ill.u.s.tration: SUN-CURING THE WASHED GREEN BEANS ON CEMENT DRYING PATIOS]

[Ill.u.s.tration: NEAR VIEW OF HEAVILY LADEN TREES READY FOR THE PICKERS]

[Ill.u.s.tration: TYPICAL COFFEE SCENES IN COSTA RICA]

Spot brokers are those who deal in actual coffee, selling from jobber to jobber, or representing out-of-town houses; the seller paying a commission of about fifteen cents a bag in small lots, and half of one percent in large lots.