Open AccessHedging with futures contracts in the Brazilian soybean complex: : BM&F vs. CBOT
Author(s) -
Andréia Regina O. da Silva,
Danilo Rolim Dias de Aguiar,
João Eustáquio de Lima
Publication year - 2003
Publication title -
revista de economia e sociologia rural
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.303
H-Index - 16
eISSN - 1806-9479
pISSN - 0103-2003
DOI - 10.1590/s0103-20032003000200004
Subject(s) - futures contract , soybean meal , agribusiness , soybean oil , economics , olive oil , hedge , soy bean , business , financial economics , food science , chemistry , agriculture , organic chemistry , biology , raw material , ecology
This article analyzes the effectiveness of hedging Brazilian soy oil, soy meal, and soybeans in the Chicago Board of Trade (CBOT) and in the Brazilian Commodities and Futures Exchange (BM&F) to reduce the risk of financial loss due to commodity price fluctuations. The econometric results show that a cross-hedging strategy using the BM&F soybean futures contract is an instrument of low effectiveness for managing soy oil and soy meal price risk. Despite low effectiveness, the estimates demonstrate total advantage for soy meal hedging operations using CBOT soy meal futures contracts rather than cross-hedging using BM&F soybean futures contracts. With some exceptions, the results are also more favorable for hedging soy oil with soy oil futures contracts at the CBOT rather than cross hedging with soybeans at the BM&F. Conversely, Brazilian traders hedging soybeans receive more effective risk protection by trading soybean futures contracts at the BM&F than by trading soybean futures contracts at the CBOT