Hedging with futures contracts in the Brazilian soybean complex: BM&F vs. CBOT

This article analyzes the effectiveness of hedging Brazilian soy oil, soy meal, and soybeans in the Chicago Board of Trade (CBOT) and in the Brazilian Commodities and Futures Exchange (BM&F) to reduce the risk of financial loss due to commodity price fluctuations. The econometric results show th...

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Main Authors: Silva Andréia Regina O. da, Aguiar Danilo R. D., Lima João Eustáquio de
Format: Article
Language:English
Published: Sociedade Brasileira de Economia e Sociologia Rural 2003-01-01
Series:Revista de Economia e Sociologia Rural
Subjects:
Online Access:http://www.scielo.br/scielo.php?script=sci_arttext&pid=S0103-20032003000200004
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author Silva Andréia Regina O. da
Aguiar Danilo R. D.
Lima João Eustáquio de
author_facet Silva Andréia Regina O. da
Aguiar Danilo R. D.
Lima João Eustáquio de
author_sort Silva Andréia Regina O. da
collection DOAJ
description This article analyzes the effectiveness of hedging Brazilian soy oil, soy meal, and soybeans in the Chicago Board of Trade (CBOT) and in the Brazilian Commodities and Futures Exchange (BM&F) to reduce the risk of financial loss due to commodity price fluctuations. The econometric results show that a cross-hedging strategy using the BM&F soybean futures contract is an instrument of low effectiveness for managing soy oil and soy meal price risk. Despite low effectiveness, the estimates demonstrate total advantage for soy meal hedging operations using CBOT soy meal futures contracts rather than cross-hedging using BM&F soybean futures contracts. With some exceptions, the results are also more favorable for hedging soy oil with soy oil futures contracts at the CBOT rather than cross hedging with soybeans at the BM&F. Conversely, Brazilian traders hedging soybeans receive more effective risk protection by trading soybean futures contracts at the BM&F than by trading soybean futures contracts at the CBOT.
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spelling doaj.art-a54a5e780009445ab684bc5a1c0ce8862022-12-22T02:04:58ZengSociedade Brasileira de Economia e Sociologia RuralRevista de Economia e Sociologia Rural0103-20032003-01-01412383405Hedging with futures contracts in the Brazilian soybean complex: BM&F vs. CBOTSilva Andréia Regina O. daAguiar Danilo R. D.Lima João Eustáquio deThis article analyzes the effectiveness of hedging Brazilian soy oil, soy meal, and soybeans in the Chicago Board of Trade (CBOT) and in the Brazilian Commodities and Futures Exchange (BM&F) to reduce the risk of financial loss due to commodity price fluctuations. The econometric results show that a cross-hedging strategy using the BM&F soybean futures contract is an instrument of low effectiveness for managing soy oil and soy meal price risk. Despite low effectiveness, the estimates demonstrate total advantage for soy meal hedging operations using CBOT soy meal futures contracts rather than cross-hedging using BM&F soybean futures contracts. With some exceptions, the results are also more favorable for hedging soy oil with soy oil futures contracts at the CBOT rather than cross hedging with soybeans at the BM&F. Conversely, Brazilian traders hedging soybeans receive more effective risk protection by trading soybean futures contracts at the BM&F than by trading soybean futures contracts at the CBOT.http://www.scielo.br/scielo.php?script=sci_arttext&pid=S0103-20032003000200004cross-hedgingsoybean industryhedging effectiveness
spellingShingle Silva Andréia Regina O. da
Aguiar Danilo R. D.
Lima João Eustáquio de
Hedging with futures contracts in the Brazilian soybean complex: BM&F vs. CBOT
Revista de Economia e Sociologia Rural
cross-hedging
soybean industry
hedging effectiveness
title Hedging with futures contracts in the Brazilian soybean complex: BM&F vs. CBOT
title_full Hedging with futures contracts in the Brazilian soybean complex: BM&F vs. CBOT
title_fullStr Hedging with futures contracts in the Brazilian soybean complex: BM&F vs. CBOT
title_full_unstemmed Hedging with futures contracts in the Brazilian soybean complex: BM&F vs. CBOT
title_short Hedging with futures contracts in the Brazilian soybean complex: BM&F vs. CBOT
title_sort hedging with futures contracts in the brazilian soybean complex bm f vs cbot
topic cross-hedging
soybean industry
hedging effectiveness
url http://www.scielo.br/scielo.php?script=sci_arttext&pid=S0103-20032003000200004
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AT limajoaoeustaquiode hedgingwithfuturescontractsinthebraziliansoybeancomplexbmfvscbot