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Non-Commodity Agricultural Price Hedging with Minimum Tracking Error Portfolios: The Case of Mexican Hass Avocado

Author

Listed:
  • Oscar V. De la Torre-Torres

    (Faculty of Accounting and Management Sciences, Universidad Michoacana de San Nicolás de Hidalgo (UMSNH), Morelia 58000, Mexico)

  • María de la Cruz del Río-Rama

    (Business Management and Marketing Department, Faculty of Business Sciences and Tourism, University of Vigo, 32004 Ourense, Spain)

  • Álvarez-García José

    (Departamento de Economía Financiera y Contabilidad, Instituto Universitario de Investigación para el Desarrollo Territorial Sostenible (INTERRA), Universidad de Extremadura, 10071 Cáceres, Spain)

Abstract

The present paper tests the use of an agricultural futures minimum tracking error portfolio to replicate the price of the Mexican Hass avocado (a non-commodity). The motivation is that this portfolio could be used to balance the basis risk that the avocado price hedge issuer could face. By performing a backtest of a theoretical avocado producer from January 2000 to September 2023, the results show that the avocado producer could hedge the avocado price by 94%, with the hedge offered by a theoretical financial or government institution. Also, this issuer could balance the risk of such a hedge by buying a coffee–sugar futures portfolio. The cointegrated or long-term relationship shows that using such a futures portfolio is useful for Mexican Hass avocado price hedging. This paper stands as one of the first in testing futures portfolios to offer a synthetic hedge of non-commodities through a commodities’ futures portfolio.

Suggested Citation

  • Oscar V. De la Torre-Torres & María de la Cruz del Río-Rama & Álvarez-García José, 2024. "Non-Commodity Agricultural Price Hedging with Minimum Tracking Error Portfolios: The Case of Mexican Hass Avocado," Agriculture, MDPI, vol. 14(10), pages 1-28, September.
    • Handle: RePEc:gam:jagris:v:14:y:2024:i:10:p:1692-:d:1486977
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