IDEAS home Printed from https://ideas.repec.org/a/caa/jnlage/v60y2014i4id120-2013-agricecon.html
   My bibliography  Save this article

Hedging techniques in commodity risk management

Author

Listed:
  • Josef TAUŠER

    (Faculty of International Relations, University of Economics, Prague)

  • Radek ČAJKA

    (Faculty of International Relations, University of Economics, Prague)

Abstract

The article focuses on selected aspects of risk management in agricultural business with the aim to discuss and compare different hedging methods which are relevant for managing the commodity risks associated with agricultural production. The article provides a broader context for understanding the risks and possible responses to it and analyses four basic hedging strategies - commodity futures, forward contracts, options and option strategies. The substance, advantages and disadvantages of each hedging technique are pointed out and compared to each other with the conclusion that there is always some kind of trade-off between the advantages and disadvantages of the particular strategies. The farmers shall, therefore, consider both all aspects of the relevant strategies and their expectations, before they make the final decision which instruments to use.

Suggested Citation

  • Josef TAUŠER & Radek ČAJKA, 2014. "Hedging techniques in commodity risk management," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 60(4), pages 174-182.
    • Handle: RePEc:caa:jnlage:v:60:y:2014:i:4:id:120-2013-agricecon
    DOI: 10.17221/120/2013-AGRICECON
    as

    Download full text from publisher

    File URL: http://agricecon.agriculturejournals.cz/doi/10.17221/120/2013-AGRICECON.html
    Download Restriction: free of charge
    File URL: http://agricecon.agriculturejournals.cz/doi/10.17221/120/2013-AGRICECON.pdf
    Download Restriction: free of charge
    File URL: https://libkey.io/10.17221/120/2013-AGRICECON?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Irwin, Scott H. & Sanders, Dwight R., 2012. "Financialization and Structural Change in Commodity Futures Markets," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 44(3), pages 1-26, August.
    2. Michael S. Haigh & Matthew T. Holt, 2000. "Hedging Multiple Price Uncertainty in International Grain Trade," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 881-896.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Monika HARČARIKOVÁ, 2015. "Proposal of new outperformance certificates in agricultural market," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 61(9), pages 400-409.
    2. Eewoud Lievens & Kobe Tielens & Erik Mathijs, 2021. "Creating a market for price swaps: Case study of an innovative risk management instrument in the Belgian-Dutch pear market," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 67(1), pages 33-40.
    3. Choi, Insu & Kim, Woo Chang, 2024. "Practical forecasting of risk boundaries for industrial metals and critical minerals via statistical machine learning techniques," International Review of Financial Analysis, Elsevier, vol. 94(C).
    4. Martina RUSNÁKOVÁ, 2015. "Commodity price risk management using option strategies," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 61(4), pages 149-157.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Julyerme M. Tonin & Carlos M. R. Vieira & Rui M. de Sousa Fragoso & João G. Martines Filho, 2020. "Conditional correlation and volatility between spot and futures markets for soybean and corn," Agribusiness, John Wiley & Sons, Ltd., vol. 36(4), pages 707-724, October.
    2. Shernaz Bodhanwala & Harsh Purohit & Nidhi Choudhary, 2020. "The Causal Dynamics in Indian Agriculture Commodity Prices and Macro-Economic Variables in the Presence of a Structural Break," Global Business Review, International Management Institute, vol. 21(1), pages 241-261, February.
    3. Berna Karali & Scott H. Irwin & Olga Isengildina‐Massa, 2020. "Supply Fundamentals and Grain Futures Price Movements," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(2), pages 548-568, March.
    4. Abid, Ilyes & Goutte, Stéphane & Guesmi, Khaled & Jamali, Ibrahim, 2019. "Transmission of shocks and contagion from U.S. to MENA equity markets: The role of oil and gas markets," Energy Policy, Elsevier, vol. 134(C).
    5. Udo Broll & Peter Welzel & Kit Pong Wong, 2013. "Price Risk and Risk Management in Agriculture," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 7(2), June.
    6. Michael S. Haigh & David A. Bessler, 2004. "Causality and Price Discovery: An Application of Directed Acyclic Graphs," The Journal of Business, University of Chicago Press, vol. 77(4), pages 1099-1121, October.
    7. Bryant, Henry L. & Haigh, Michael S., 2003. "Comparing The Performances Of The Partial Equilibrium And Time-Series Approaches To Hedging," Working Papers 28580, University of Maryland, Department of Agricultural and Resource Economics.
    8. Haigh, Michael S. & Bryant, Henry L., 2001. "The effect of barge and ocean freight price volatility in international grain markets," Agricultural Economics, Blackwell, vol. 25(1), pages 41-58, June.
    9. Röthig, Andreas, 2008. "The Impact of Backwardation on Hedgers' Demand for Currency Futures Contracts: Theory versus Empirical Evidence," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35698, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    10. Alexander, Carol & Prokopczuk, Marcel & Sumawong, Anannit, 2013. "The (de)merits of minimum-variance hedging: Application to the crack spread," Energy Economics, Elsevier, vol. 36(C), pages 698-707.
    11. Jian Yang & Titus Awokuse, 2003. "Asset storability and hedging effectiveness in commodity futures markets," Applied Economics Letters, Taylor & Francis Journals, vol. 10(8), pages 487-491.
    12. Zaremba, Adam, 2015. "Inflation, Business Cycles, and Commodity Investing in Financialized Markets," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 6(1), pages 1-18, January.
    13. Fry-McKibbin, Renée & McKinnon, Kate, 2023. "The evolution of commodity market financialization: Implications for portfolio diversification," Journal of Commodity Markets, Elsevier, vol. 32(C).
    14. Su, EnDer, 2013. "Stock index hedge using trend and volatility regime switch model considering hedging cost," MPRA Paper 49190, University Library of Munich, Germany.
    15. Jin, Hyun J. & Koo, Won W., 2006. "Offshore hedging strategy of Japan-based wheat traders under multiple sources of risk and hedging costs," Journal of International Money and Finance, Elsevier, vol. 25(2), pages 220-236, March.
    16. Keim, Jan & Müller, Susan & Dey, Pascal, 2024. "Whatever the problem, entrepreneurship is the solution! Confronting the panacea myth of entrepreneurship with structural injustice," Journal of Business Venturing Insights, Elsevier, vol. 21(C).
    17. Małgorzata Just & Aleksandra Łuczak, 2020. "Assessment of Conditional Dependence Structures in Commodity Futures Markets Using Copula-GARCH Models and Fuzzy Clustering Methods," Sustainability, MDPI, vol. 12(6), pages 1-22, March.
    18. Bianchi, Robert J. & Fan, John Hua & Todorova, Neda, 2020. "Financialization and de-financialization of commodity futures: A quantile regression approach," International Review of Financial Analysis, Elsevier, vol. 68(C).
    19. Irwin, Scott H., 2020. "Trilogy for troubleshooting convergence: Manipulation, structural imbalance, and storage rates," Journal of Commodity Markets, Elsevier, vol. 17(C).
    20. Etienne, Xiaoli L. & Irwin, Scott H. & Garcia, Philip, 2014. "Bubbles in food commodity markets: Four decades of evidence," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 129-155.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:caa:jnlage:v:60:y:2014:i:4:id:120-2013-agricecon. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ivo Andrle (email available below). General contact details of provider: https://www.cazv.cz/en/home/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.