Options market as an alternative for managing price risk for soybean farmers

Betina Simon Valaski and Flavio Carlos Dalchiavon

Revista IPecege, 2019, vol. 4, issue 4

Abstract: Price risk management is still underutilized by soybean farmers, often due to a lack of knowledge. This study aimed to evaluate whether the Options Market fulfills the purpose of price protection (“hedging”) for soybeans. The effective operating cost [EOC] and the effective operating contribution margin [EOC] were calculated for the 2015/2016 soybean crop, using data from a rural property in Cascavel-PR. The use of the Options Market on the Brazilian Stock Exchange, Commodities and Futures Exchange [BM&FBOVESPA] was simulated, using two strike prices [Pe] negotiated on the K16 soybean futures contract, considering the values ​​of forward purchases of inputs and their maturities. The EOC obtained after the simulation was compared to the EOC obtained without hedging. The correlation and daily bases were calculated, considering prices in the futures market (BM&FBOVESPA) and in the physical market, at the Secretariat of Agriculture and Supply of the State of Paraná [SEAB], between March 30, 2015, and April 28, 2016. The correlation obtained was 0.82, and the daily bases were always negative. The simulation results on BM&FBOVESPA were negative for both Pe, since the market was bullish; thus, the option is not exercised, and the loss is limited to the premium paid for the option. These negative results reduced the MCOE by 7.31% and 1.97%. Seeking knowledge and understanding of the risks and functioning of this market is fundamental for the soybean farmer to achieve success.

Keywords: Agribusiness (search for similar items in EconPapers)
Date: 2019
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