Analysis of cross hedge for the Brazilian sugar market
DOI:
https://doi.org/10.4013/pe.2014.102.05Abstract
The aim of this study is to evaluate whether cross hedging with futures contracts of Brazilian hydrous and anhydrous ethanol American would be an effective tool against unwanted movements in the prices of sugar, given the absence of a future contract for producers of crystal sugar in the period 2010-2012. Four weekly series were built for the estimation of the optimum ratio and effectiveness of cross hedge. Through the variances and covariances obtained with the estimation of VAR (Vector Autoregressive) model matrix, we obtained the optimum ratio and the effectiveness of the operation of cross hedge. The optimal ratio between the cross hedge future of Brazilian hydrated ethanol and sugar was approximately 2%, but the operation was not effective. As for the cross hedge between American anhydrous ethanol and Brazilian sugar crystal, the optimal ratio was approximately 19%, and the effectiveness of the operation was of 2%, showing to be somewhat more effective, but it is not enough to protect the agents from the physical market of Brazilian sugar crystal.
Keywords: cross hedging with Brazilian hydrous and anhydrous American ethanol, spot market of crystal sugar, effectiveness.
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