Quantitative analysis of feasibility of hydrous ethanol futures contracts in Brazil

Derick Quintino and Sergio Adriani David

Energy Economics, 2013, vol. 40, issue C, 927-935

Abstract: Brazil's first ethanol futures contract, which was implemented in 2000, failed to offer sufficient liquidity to attract market agents. The purpose of this study is to determine whether the new ethanol futures contracts launched by BMF-BOVESPA in 2010 meet the requirements to render them feasible. The originality of this work stems from its approach in analyzing different cross-hedging possibilities in the food and energy chains. This analysis, which covers the period of May 2010 to April 2012, evaluates the degree of competition in the sector, the price volatility of the spot market, the price correlations between its possible substitutes, as well as the possibility of cross-hedging Brazil's ethanol with contracts in international futures markets and their potential degree of substitution. The results of this study indicate that the new configuration of BMF-BOVESPA ethanol futures contracts meets the most requirements for viability. Nevertheless, the ethanol distribution sector is relatively concentrated, which may limit the liquidity of BMF-BOVESPA ethanol futures contracts.

Keywords: Energy; Sugarcane industry; Ethanol futures contract; BMF-BOVESPA (search for similar items in EconPapers)
JEL-codes: C4 D53 G13 O13 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:40:y:2013:i:c:p:927-935

DOI: 10.1016/j.eneco.2013.07.027

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