7. COMMODITIES HELD BY BROKER

6 Months Ended

Apr. 30, 2014

Notes to Financial Statements

7. 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, 2014			October 31, 2013
Option Contracts	$	298,722		$	(188,819	)
Future Contracts		(109,659	)		(795,221	)
Total Commodities	$	189,063		$	(984,040	)

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, 2014, the Company held 80 options covering an aggregate of 3,000,000 pounds of green coffee beans at $1.975 per pound.  The fair market value of these options, which was obtained from observable market data of similar instruments, was $349,950.

At October 31, 2013, the Company held 149 futures contracts for the purchase of 5,587,500 pounds of green coffee at a weighted average price of $1.19 per pound.  The fair market value of coffee applicable to such contracts was $1.08 per pound at that date.  The Company also held 120 options covering an aggregate of 4,500,000 pounds of green coffee beans at $1.10 per pound.  The fair market value of these options, which was obtained from observable market data of similar instruments, was $244,800.

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

	Three Months Ended April 30,
	2014			2013
Gross realized gains	$	1,334,861		$	384,950
Gross realized losses		(933	)		(1,312,556	)
Unrealized losses		(6,492	)		(423,328	)
Total	$	1,327,436		$	(1,350,934	)

	Six Months Ended April 30,
	2014			2013
Gross realized gains	$	2,155,843		$	1,152,007
Gross realized losses		(972,188	)		(2,505,614	)
Unrealized gains		1,173,102			30,555
Total	$	2,356,757		$	(1,323,052	)