Commodity trading for forex now showing empirical effect
The trading performance of the Ethiopian Commodity Exchange (ECX) improved over the first six months of the fiscal year even though the volume of traded goods was below expectations. Their report, which covered the first six months of the fiscal year starting from July 8, 2017, showed that 256 thousand metric tons of three major crops; coffee, sesame seeds and pea beans, were traded, bringing in 14 billion birr.
The volume was 88 percent of their goal but the money taken in was 11 percent more than what ECX hoped for.
Commodity prices have been skyrocketing in Ethiopia.
“Sesame seed prices are increasing the most but all commodities are getting more expensive at ECX, still this report is surprising because the volume was less than the target and the given the rates during this period the result should not look like this,” an expert said.
Previously, the Ministry of Trade and Industry accused traders of escalating commodity prices on the floor even though prices of crops like coffee declined or remained stagnant on the international market compared with a similar period last year.
Recently, the Ethiopian Coffee and Tea Authority reported that the price of coffee on the New York Coffee Exchange declined. The Authority’s report contrasts the half year monthly trading of the New York Coffee Exchange with the past budget year showing that the price declined significantly, during the current budget year. For instance, in July 2017 a ton of coffee was traded at USD 4,199, while it was USD 3,664 in July 2018 which is a 16 percent decrease.
On the international market on average in the last six months the price of coffee has declined from 24 percent to 9 percent compared with a similar period last year.
The major problem is exporters, often new to the business, who make their money by importing goods so they export commodities only to get foreign currency not to make a profit. For this reason they are willing to pay high prices for the commodities and then sell them at a loss so they can get hard currency for their imports. This messes up the market and leads to inflation.
To make things worse, according to the Ministry of Trade, now people are buying white pea beans outside ECX, which is illegal. According to experts, this could be one reason for the reduction in trading volume on the modern trading floor.
During the first six months, according to ECX, 255,763 tones of commodities were traded which is a decrease of 17 percent compared with a similar period last year, although this is not lower than the target. There were 129,993 tons of coffee, 99,147 tons of sesame seeds and 26,623 tons of pea beans traded on the floor.
Receiving less commodities, preferring to hold on to crops because they are speculating that the prices will increase, and instability in some production areas are why ECX says the volume traded on the floor has gone down.