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Hedging Effectiveness of Commodity Futures Contracts to Minimize Price Risk: Empirical Evidence from the Italian Field Crop Sector

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  • Carlotta Penone

    (Department of Land, Environment Agriculture and Forestry, University of Padua, 35122 Padova, Italy)

  • Elisa Giampietri

    (Department of Land, Environment Agriculture and Forestry, University of Padua, 35122 Padova, Italy)

  • Samuele Trestini

    (Department of Land, Environment Agriculture and Forestry, University of Padua, 35122 Padova, Italy)

Abstract

Over the last years, farmers have been increasingly exposed to income risk due to the volatility of the commodities prices. Among others, hedging in futures markets (i.e., financial markets) represents an available strategy for producers to cope with income risks at farm level. To better understand the advantages of such promising tools, this paper aims at analyzing the hedging effectiveness for soybean, corn and milling wheat producers in Italy. Following the literature, three different methodologies (i.e., naïve, OLS, GARCH) are applied for the estimation of the hedge portfolio, then compared to an unhedged portfolio for assessing the income risk reduction. Findings confirm the hedging effectiveness of futures contracts for all the considered commodities, showing also that this effect increases with longer hedge horizons, and also showing better performances for the European exchange market (i.e., Euronext), compared to the North American counterpart.

Suggested Citation

  • Carlotta Penone & Elisa Giampietri & Samuele Trestini, 2021. "Hedging Effectiveness of Commodity Futures Contracts to Minimize Price Risk: Empirical Evidence from the Italian Field Crop Sector," Risks, MDPI, vol. 9(12), pages 1-14, December.
    • Handle: RePEc:gam:jrisks:v:9:y:2021:i:12:p:213-:d:692417
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    Cited by:

    1. Carlotta Penone & Samuele Trestini, 2022. "Testing for asymmetric cointegration of Italian agricultural commodities prices: Evidence from the futures-spot market relationship," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 68(2), pages 50-58.
    2. Sigl, Lukas & Hirschauer, Norbert, 2024. "The hedging efficiency of wheat futures in various types of farms in Germany," SocArXiv pvq9t, Center for Open Science.
    3. Daniel May & Ourania Tremma, 2023. "Effects of Sustainable Regulations at Agricultural International Market Failures: A Dynamic Approach," Sustainability, MDPI, vol. 15(3), pages 1-10, January.
    4. Markus Arlindo Monteiro & Bennie Grové & Nicolette Matthews, 2022. "Developing a Moving Average Crossover Strategy as an Alternative Hedging Strategy for the South Africa Maize Market," Agriculture, MDPI, vol. 12(8), pages 1-14, August.

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