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Quantitative analysis of feasibility of hydrous ethanol futures contracts in Brazil

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  • Quintino, Derick David
  • David, Sergio Adriani

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.

Suggested Citation

  • Quintino, Derick David & David, Sergio Adriani, 2013. "Quantitative analysis of feasibility of hydrous ethanol futures contracts in Brazil," Energy Economics, Elsevier, vol. 40(C), pages 927-935.
    • Handle: RePEc:eee:eneeco:v:40:y:2013:i:c:p:927-935
    DOI: 10.1016/j.eneco.2013.07.027
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    Cited by:

    1. Derick D. Quintino & Sergio A. David & Carlos E. de F. Vian, 2017. "Analysis of the Relationship between Ethanol Spot and Futures Prices in Brazil," IJFS, MDPI, vol. 5(2), pages 1-10, April.
    2. Rubio-Varas, Mar & Muñoz-Delgado, Beatriz, 2017. "200 years diversifying the energy mix? Diversification paths of the energy baskets of European early comers vs. latecomers," Working Papers in Economic History 2017/01, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    3. Awudu, Iddrisu & Wilson, William & Dahl, Bruce, 2016. "Hedging strategy for ethanol processing with copula distributions," Energy Economics, Elsevier, vol. 57(C), pages 59-65.
    4. David, S.A. & Inácio, C.M.C. & Quintino, D.D. & Machado, J.A.T., 2020. "Measuring the Brazilian ethanol and gasoline market efficiency using DFA-Hurst and fractal dimension," Energy Economics, Elsevier, vol. 85(C).
    5. Rafael Baptista Palazzi & Ata Assaf & Marcelo Cabus Klotzle, 2024. "Dynamic connectedness between energy markets and the Brazilian cash market: An empirical analysis pre‐ and post‐COVID‐19," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(1), pages 27-56, January.
    6. Derick David Quintino & Heloisa Lee Burnquist & Paulo Jorge Silveira Ferreira, 2021. "Carbon Emissions and Brazilian Ethanol Prices: Are They Correlated? An Econophysics Study," Sustainability, MDPI, vol. 13(22), pages 1-18, November.
    7. Rafael Henrique Mainardes Ferreira & Claudia Tania Picinin, 2018. "Bibliometric analysis for characterization of oil production in Brazilian territory," Scientometrics, Springer;Akadémiai Kiadó, vol. 116(3), pages 1945-1974, September.

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    More about this item

    Keywords

    Energy; Sugarcane industry; Ethanol futures contract; BMF-BOVESPA;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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