Research On The Impact Of ICE "C" Coffee Futures On Yunnan Coffee Spot Price

Coffee is the world’s second largest beverage after tea.Coffee beans upstream of its industrial chain are also an important commodity.Hundreds of millions of people in the world depend on the production and operation of coffee beans for a living.Coffee bean is also a commodity with high price volatility.Futures market provides coffee industry practitioners with pricing reference and price risk management tools.At present,the Intercontinental Exchange(ICE)is the world’s most important coffee futures exchange.The "C" type coffee futures and "U" type coffee futures launched by ICE have become the pricing benchmark of the world’s Arabica coffee spot and Robusta coffee spot respectively.Yunnan is the ninth largest producing area of Arabica coffee in the world.However,there is currently no coffee futures market in China.For the coffee practitioners in Yunnan,they are still facing the problems of large fluctuations in coffee price and insufficient risk management tools.Using ICE "C" coffee futures for pricing and risk management is a possible option.However,no one has ever studied such issues as whether ICE "C"coffee futures are worthy of reference and a reliable tool for transferring the risk of Yunnan coffee price.Therefore,this paper studies the relationship between ICE "C" coffee futures price and Yunnan coffee spot price.Based on the definition that futures price discovery is "price leadership and information transmission mechanism of the same period",this paper uses a VAR-BEKK-GARCH model to study the impact of ICE "C" coffee futures on the spot price of Yunnan coffee from the perspectives of mean and volatility.Firstly,the paper studies the impact of ICE "C" coffee futures on the spot price of Yunnan coffee through Granger causality test,impulse response analysis and volatility spillover effect test,and then tests the contribution of futures and spot to the formation of spot price through variance decomposition.This paper finds that the change in the price of ICE "C" coffee futures will lead to the change in the spot price of Yunnan coffee in a one-way and short-term way,which is shown in the Granger causality test that the futures earnings of the previous period are the one-way Granger cause of the spot earnings of the current period,the volatility spillover test also finds the one-way volatility spillover from the futures market to the spot market,and the impulse response analysis finds that an impact from the futures earnings will only be responded in the spot price of the next two periods;In addition,through variance decomposition,it is found that in the formation of spot price,the contribution rate of futures is less than 20%,while the contribution rate of spot itself is more than 80%,which indicates that the impact of ICE "C" coffee futures price on the spot price of Yunnan coffee is limited.On the whole,ICE "C" coffee futures are helpful to predict the change direction of Yunnan coffee spot price in the short term,but if it is used to transfer price risk,there will be uncertainty.Finally,the paper suggests that relevant institutions and departments should promote the development of Yunnan’s coffee industry by strengthening internal and external linkages,accelerating the introduction of China’s coffee futures,further developing the spot market,policies and financial support,etc.