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COMMODITIES HELD BY BROKER
 6 Months Ended
Apr. 30, 2012
Notes to Financial Statements  
COMMODITIES HELD BY BROKER

 

NOTE 8 - COMMODITIES HELD BY BROKER:

 

The commodities held at the broker represent the market value of the Company’s trading account, which consists of options and future contracts for coffee held with a brokerage firm. The Company uses options and futures contracts, which are not designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are recognized at fair value in the condensed consolidated financial statements with current recognition of gains and losses on such positions. The Company’s accounting for options and futures contracts may increase earnings volatility in any particular period.

 

The Company has open position contracts held by the broker, which are summarized as follows:

 

   April 30, 2012 unaudited  October 31, 2011
           
Option Contracts   (537,645)   129,750 
Future Contracts   (33,300)   (1,997,308)
Total Commodities   (570,945)   (1,867,558)

 

The Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and losses are included in earnings and not reflected as a net amount as a separate component of stockholders’ equity.

 

At April 30, 2012, the Company held 100 options (generally with terms of two months or less) covering an aggregate of 3,750,000 pounds of green coffee beans at $1.90 per pound. The fair market value of these options, which was obtained from observable market data of similar instruments was $423, 750. At April 30, 2012, the Company held 133 futures contracts for the purchase of 4,987,500 pounds of green coffee at a weighted average price of $1.802 per pound. The fair market value of coffee applicable to such contracts was $1.795 per pound at that date.

 

At April 30, 2011, the Company held 231 options (generally with terms of two months or less) covering an aggregate of 8,662,500 pounds of green coffee beans at $2.87 per pound. The fair market value of these options, which was obtained from observable market data of similar instruments was $3.00 per pound. At April 30, 2011, the Company did not hold any futures contracts.

 

The Company recorded realized and unrealized gains and losses respectively, on these contracts as follows:

  

   Three Months Ended April 30,
   2012 unaudited  2011 unaudited
Gross realized gains  $306,575   $1,017,311 
Gross realized losses   (1,410,588)   (2,814)
Unrealized gains   (280,681)   202,323 
Total  $(1,384,694)  $1,216,820 

 

 

   Six Months Ended April 30,
   2012 unaudited  2011 unaudited
Gross realized gains  $489,105   $1,852,571 
Gross realized losses   (2,197,988)   (5,233)
Unrealized gains   1,296,613    47,886 
Total  $(412,270)  $1,895,224