Latex trading added to Agricultural Futures Exchange of Thailand
See “AFET sees turnover triple over two years” (business, page 2)By Jon Fernquest
|
Commodities exchanges eliminate this uncertainty by allowing farmers to hedge against future price fluctuations. Hedging provides an insurance policy to guarantee and lock in future prices. With predictable prices, farmers can make better business decisions. Other traders on the commodities exchange effectively assume the risk. (Read about the World Bank’s promotion of hedging).
Many economists believe that price stabilization through markets is more efficient than price stabilization by government regulation. Market prices automatically reflect all available information, something that government regulatory agencies are rarely able to do. Do you remember all the problems recently when the government tried to regulate the price of sugar.
Another benefit of commodity markets is a standardization of agricultural output which makes trading it easier. Skim through the article and underline all the different names of standardized agricultural commodities you can find.
“Commodity” usually means large quantities of a standardized good. When you buy rice or meat in the market to cook at home, you want it to be the same every day. Imagine if it wasn’t. Everyday you would have to learn a new way to cook it. A pure commodity is, by definition, always the same, so the consumer has no choice. A business cannot market a pure commodity, because product differentiation is impossible. (See Wikipedia:Commodity).
Thailand’s commodities exchange is “The Agricultural Futures Exchange of Thailand (AFET)”. What commodities are currently traded on this market? How many different rubber products are traded on the exchange? (Note that latex is considered a rubber product.) Use the AFET site to answer the following questions. What year did AFET start trading? Where can you find spot prices and forward contract prices?
The names of three associations and institutes are mentioned in the article: 1. The Rubber Research Institute of Thailand, 2. The Thai Rubber Association, and 3. The Thai Latex Association. What of these organizations are trade associations? Which are set industry standards?
According to the article, how does turnover on AFET compare to other countries like Japan? What is AFET’s future strategy for increasing Thailand's share latex commodity trading? Underline the different "benchmark prices" for latex mentioned in the article (3 times). Is there a Thai benchmark price for latex yet?
Vocabulary (in discussion above)
price volatility – prices are likely to change suddenly and unexpectedlycommodities exchange - a market where contracts for future and immediate delivery of different commodities are bought and sold (See Wikipedia:Commodity_Markets)
hedge against – protect against bad things happening
price fluctuations – a price changes a lot in an irregular way
to assume the risk – to take the risk from someone else
lock in - make fixed and unchanging
price stabilization – taking steps to make prices stable and predictable
government regulation – rules made by the government to control the way something is done or the way that people behave
government regulatory organizations – the departments within the government that make regulations for different industries
standardization, standardized – change things so that they are the same (have the same features)
commodity – a good that is: 1. sold in large quantities, 2. every unit is the same.
product differentiation – making a product different to attract customers
spot price - price of a commodity for immediate delivery (See Wikipedia:Spot_Price)
forward contract - a contract for the future delivery of a commodity (See Wikipedia:Forward_Contract)
Vocabulary (in article)
dilute – to make something weaker by adding in another chemical like waterconcentrated – has a higher percentage of latex, has not been diluted with other chemicals like water (example: 100% orange juice concentrate)
latex – white substance from trees used to make rubber and glue (See Wikipedia:Latex and Wikipedia:Rubber)
futures exchange – a market in which contracts for future delivery of a commodity are bought and sold (See Wikipedia:Futures_Exchange)
turnover – volume or amount of trading, number of contracts traded
a futures contract – an agreement to delivery some commodity at a future time
key – important and necessary (a key material, a key factor)
catheters – a tube used to withdraw or introduce liquids into the human body
fluctuations - changes
the minimum price fluctuation limit – the price change has to be at least this big for the official price at the commodities exchange to change
proprietary traders – traders whose business is trading (they are not trading for some other reason like farmers hedging prices)
risk management – controlling unexpected things like price changes
a supply channel – a way you obtain your supply of a good (for example through a company, farmers, or a commodities exchange)
liquidity – the amount of cash a company has (including assets easily convertible to cash)
the true market price – the price that makes supply equal demand in the market so that everything is sold (the market clears)
a benchmark – a standard
a benchmark price - a standard market price for a good that people can use to buy and sell it
Some more things to read and research
1. The various uses of latex: “Latex is used as raw materials in various industries. The drip process is used in manufacturing gloves, balloons, condoms, bottle nipples, and medical equipments, while the coating process is use for lining carpeting products to add rigidity and increase comfort. The foaming process latex is used in mattress, pillows, and cushions. Latex has also found its way in the textile and garment industries such as waistbands and fashion accessories.” (Source)2. Recently, has the supply and price of rubber and latex decreased or increased? Do a Google search.
