7. COMMODITIES HELD BY BROKER

9 Months Ended

Jul. 31, 2015

Notes to Financial Statements

7. COMMODITIES HELD BY BROKER

The Company has used, and intends to continue to use in a limited capacity, short-term coffee futures and options contracts primarily for the purpose of partially hedging and minimizing the effects of changing green coffee prices and to reduce our cost of sales.  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:

	July 31, 2015			October 31, 2014
Option Contracts		19,399			(217,624	)
Future Contracts		(496,060	)		(267,300	)
Total Commodities		(476,661	)		(484,924	)

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 July 31, 2015, the Company held 75 options covering an aggregate of 2,812,500 pounds of green coffee beans at $1.29 per pound.  The fair market value of these options, which was obtained from observable market data of similar instruments was $127,575.  At July 31, 2015, the Company held 83 futures contracts for the purchase of 3,112,500 pounds of green coffee at a weighted average price of $1.29 per pound.  The fair market value of coffee applicable to such contracts was $1.25 per pound at that date.

At October 31, 2014, the Company held 60 futures contracts for the purchase of 2,250,000 pounds of green coffee at a weighted average price of $2.00 per pound.  The fair market value of coffee applicable to such contracts was $1.88 per pound at that date.    The Company did not hold any options that were in the money at October 31, 2014.

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

	Three Months Ended July 31,
	2015			2014
Gross realized gains	$	293,439		$	1,165,014
Gross realized losses		(175,280	)		(824,285	)
Unrealized losses		(481,433	)		38,437
Total	$	(363,274	)	$	379,166

	Nine Months Ended July 31,
	2015			2014
Gross realized gains	$	991,706		$	3,321,023
Gross realized losses		(6,415,825	)		(1,796,474	)
Unrealized gains		8,263			1,211,540
Total	$	(5,415,856	)	$	2,736,089