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

Oscar V. De la Torre-Torres, María de la Cruz del Río-Rama () and Álvarez-García José
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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

Agriculture, 2024, vol. 14, issue 10, 1-28

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.

Keywords: Hass avocado; non-commodity price hedging; agricultural futures; minimum tracking error; active portfolio management; basis risk; CME; NYMEX (search for similar items in EconPapers)
JEL-codes: Q1 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 (search for similar items in EconPapers)
Date: 2024
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