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Hedging techniques in commodity risk management

Author

Listed:
  • Josef TAUŠER

    (Faculty of International Relations, University of Economics, Prague)

  • Radek ČAJKA

    (Faculty of International Relations, University of Economics, Prague)

Abstract

The article focuses on selected aspects of risk management in agricultural business with the aim to discuss and compare different hedging methods which are relevant for managing the commodity risks associated with agricultural production. The article provides a broader context for understanding the risks and possible responses to it and analyses four basic hedging strategies - commodity futures, forward contracts, options and option strategies. The substance, advantages and disadvantages of each hedging technique are pointed out and compared to each other with the conclusion that there is always some kind of trade-off between the advantages and disadvantages of the particular strategies. The farmers shall, therefore, consider both all aspects of the relevant strategies and their expectations, before they make the final decision which instruments to use.

Suggested Citation

  • Josef TAUŠER & Radek ČAJKA, 2014. "Hedging techniques in commodity risk management," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 60(4), pages 174-182.
    • Handle: RePEc:caa:jnlage:v:60:y:2014:i:4:id:120-2013-agricecon
    DOI: 10.17221/120/2013-AGRICECON
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    References listed on IDEAS

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    1. Irwin, Scott H. & Sanders, Dwight R., 2012. "Financialization and Structural Change in Commodity Futures Markets," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 44(3), pages 371-396, August.
    2. Michael S. Haigh & Matthew T. Holt, 2000. "Hedging Multiple Price Uncertainty in International Grain Trade," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 881-896.
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    Cited by:

    1. Martina RUSNÁKOVÁ, 2015. "Commodity price risk management using option strategies," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 61(4), pages 149-157.
    2. Choi, Insu & Kim, Woo Chang, 2024. "Practical forecasting of risk boundaries for industrial metals and critical minerals via statistical machine learning techniques," International Review of Financial Analysis, Elsevier, vol. 94(C).
    3. Monika HARČARIKOVÁ, 2015. "Proposal of new outperformance certificates in agricultural market," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 61(9), pages 400-409.
    4. Eewoud Lievens & Kobe Tielens & Erik Mathijs, 2021. "Creating a market for price swaps: Case study of an innovative risk management instrument in the Belgian-Dutch pear market," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 67(1), pages 33-40.

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