For sellers
Since forward contracts are usually more expensive than spot contracts (the market contango), buyers tend to fix late to avoid price exposure. The same contango helps sellers to achieve a higher price for next year’s coffee than this year’s.
When the market is high, few roasters and retailers are prepared to price and buy the coffee. At the same time, few producers are able to hedge the prices themselves, since it takes very solid financial backing to hedge far into the future. Through GCT, origin now has access to these Far Forward Sales.
With extensive qualification of partners on all sides, and sponsors in place as “last resort” guarantors where necessary, contracts can be drawn up in full confidence.
The sponsors are introduced by GCT to support certain producers by guaranteeing their performance.
Need for sponsorship is determined by assessment and rating:
- For the strongest suppliers, signed contracts and FFS of an appropriate percentage of the crop will be sufficient
- Those with less of a track record will be asked to commit a smaller percentage of the projected crop
- At the third level, a sponsor’s guarantee will be required for part of the crop committed
- Co-operatives will need a guarantor for fulfilment of the whole contract
This system delivers Far Forward Sales access to producers who would conventionally be unable to enter into FFS - or benefit from them.