Hedging transactions of corn for important municipalities in Goiás

Abstract

This study examined the optimal hedge ratio and its effectiveness through three different models (OLS, VAR and VEC) to obtain the most efficient model in helping to reduce risks and to obtain the optimal plot in the negotiations in the futures markets. Among the estimated models, the method of cointegrated series with the Engle-Granger error correction mechanism (OLS) showed to be the most efficient for the choice of optimal plot and risk reduction in the negotiations with futures contracts. Among the evaluated marketplaces of important municipalities in state of Goiás, Brazil, most of them had an optimal percentage of trading in futures contracts above 62%, except for the municipality of Chapadão do Céu (49%). As for hedge effectiveness, the minimal protection against dissipated risks was 51%, demonstrating that the hedging transaction is effective in all municipalities. The results showed that the hedging transactions in futures markets are an important tool in minimizing price risks for agents of the production chain of corn in the studied locations.