Transaction costs and behavior of “base” for maize price in Rio Verde, Goiás

Abstract

The aim of this study was to analyze the behavior of the “base”, which is the difference between the price of maize in the municipality of Rio Verde (state of Goiás, Brazil) and the future price of maize in BM&FBovespa, from 1/3/2005 to 3/15/2011. Thus, the hypothesis of this study is that the transaction costs and the regional characteristics of maize commercialization generate high difference in prices between markets. The threshold autoregressive model (TAR) was used to understand the important dimensions of transaction costs. The estimated results of 7.78% for the TAR parameter show weak convergence of market prices, and therefore weakening of the “base” in the region. This shows that producers minimize regional transaction costs, and therefore are more concerned with private hedging transactions in the physical market, thus not resorting to the stock exchange to protect against price fluctuation.