Chicago soya meal
Soybean meal has become a staple in livestock and poultry diets. It is largely used in fodder for livestock and even fish. It is usually made from grinding high-quality residues from soybean oil production into a yellowish-green flour. All resting TAS orders at will remain in the book for the opening, unless cancelled.
Soybean Meal Futures Trading
I Economist, M. E-mail: danilo ufv. E-mail: jelima ufv. Key words : cross-hedging, soybean industry, hedging effectiveness. Agricultural futures contracts have become important tools for the management of price risk. By means of the purchase or sale of these contracts while holding opposite positions in the physical market, farmers, agribusiness managers, grain elevators operators, and international traders are protected against adverse price variation.
If the current and future prices are correlated, the financial loss in one market future or current tends to be, at least partially, compensated for by the earnings obtained from holding the opposite position in the other market. The soybean complex is among the sectors of the Brazilian economy that demand careful administration to control financial risk.
Several facts illustrate the importance of this sector in the Brazilian economy. Brazil is now the world second largest producer of soybeans and the largest exporter of soybean meal. In spite of the expressive performance reflected in the numbers shown above, traders who operate with soybeans and soybean products are still in need of the same risk management tools that are available to their main competitors, the North Americans. Although hedges are normally made with futures contracts for the same commodity being traded in the spot market, specific futures contracts for a given commodity are not always obtainable.
The unavailability of futures contracts for all commodities leads to the use of futures contracts underpinned by commodities merely related to the one for which risk protection is intended: cross-hedging. These same traders can directly hedge any of their current soy product positions using the soybean, meal, and oil futures contracts available in international exchanges, such as the CBOT. Therefore, the viability of any soy product cross-hedging strategy should be evaluated empirically case by case.
The objective of this paper is to compare alternative hedging strategies for traders of soybeans, soy oil, and soy meal from the main Brazilian producer regions. The period of analysis runs from to , just before the drastic reduction in Brazilian contract trading. In addition, our paper uses more current econometric methodology. The paper is organized in three sections besides this introduction.
The next section, section 2, presents the portfolio theory that was applied to the futures markets and empiric procedures employed. Section 3 reports and discusses the empirical results, and section 4, the final section, offers our conclusions. Assuming that the hedger is a risk averse investor with a portfolio composed by two assets: one in the cash market and one in the futures market. As Blank et al. R h is the revenue in a portfolio with positions in both futures and cash markets;.
F is the size of the position in the futures market; and. By applying the property of the variance of a sum to equation 2 , the variance of the revenue by unit of product is obtained:. The same model allows the calculation of hedging effectiveness, which is the proportion of revenue variance that can be eliminated through the adoption of a portfolio with the optimum hedge ratio.
Mathematically, hedging effectiveness can be represented as:. Var p is the same as the variance of the change of the cash price s 2 p , since the variance of revenue without hedging depends only on the behavior of the cash price. Substituting s 2 p and 6 into 5 one gets. Considering that the coefficient of the inclination of a simple regression done by least ordinary square is the same as the covariance between the dependent and the independent variables divided by the variance of the independent variable, and that the determination coefficient R 2 is the same as the square of the coefficient of linear correlation, many authors have estimated the optimum hedge ratio and hedging effectiveness using regressions between the future price and the cash price, either by level, by differences, or by relative differences 1.
These authors argue that in the theoretical model, the covariance and variance are conditioned by the information available at the moment of decision-making; however, in simple regression models, the inclination coefficient just generates a ratio of unconditional covariance and variance of the explanatory variable. To remove such limitation, Myers and Thompson developed a generalized model in which estimation of the optimum hedge ratio takes into account the available information at the moment of decision.
This model is given by:. Like other regression models, the estimate of the optimum hedge ratio consists of the coefficient a 1. This generalized model allows the inclusion of other information that impacts the cash price, therefore, permitting variables such as production, stock, exports, and consumer income to be included in equation 8.
It is noted that if tests of unitary root show that the series are integrated of first order, equation 8 should be specified using the first differences, in other words, D p t and D f t should be used in place of p t and f t. Since the estimated regression presents explanatory variables other than average futures price, the coefficient of determination no longer reproduces the value of hedging effectiveness.
Data and procedures 2. This research uses secondary daily time series data covering the period from August 05, , to September 15, The series begins in because the series of cash prices was first generated in The futures price series were constructed using the date of contract expiration the first delivery date at the CBOT as the base date.
Wednesday was chosen because it is the most active trading day in both exchanges. If Wednesday was a holiday, the preceding Tuesday or following Thursday was substituted. After the series were built, unit root tests were carried out to verify if they were stationary. This test is justified because one of the presuppositions of the regression analysis, and of most conventional estimation methods, is that the series are stationary, in other words, their stochastic properties are time invariant Pindyck and Rubinfeld, Using the following equation, the augmented Dickey-Fuller test is applied to test stationarity of each series:.
If the hypothesis of unitary root is not rejected, the series is non-stationary or integrated of an order superior to zero. In this case, the Dickey-Fuller test is redone to determine if the series of differences are integrated of first order [I 1 ], and so forth. After the application of the unit root test, the regressions were estimated. This criterion was defined for each one of the estimated regressions, through which operators were tested in polynomial form and chosen using the smaller value criterion.
Results from the augmented Dickey-Fuller tests do not reject the unit root hypotheses for any of the regional prices and futures prices series. These low optimum effectiveness values indicate that this cross-hedging operation is an unappealing risk protection option.
This hedging strategy had a degree of regional effectiveness that varied from a very unhelpful negative These results need careful analysis. The estimated optimum soybean futures to soybeans hedge ratio oscillated between 0. At the best, risk reduction was just In the biweekly series soybean hedging efficiency using the CBOT contract ranged from The estimates made using biweekly data were very similar to the ones generated using weekly observations except in the case of the soy oil hedge.
This general similarity brings more consistency to the following summary of the results. In the case of soybeans, the relationship between cash and futures prices favored the domestic exchange.
There was divergence between the biweekly and the weekly soy oil hedging results. This apparent contradiction suggests that one need be careful when broadly assuming that one hedging strategy offers better risk protection than another in that market. What can be taken from the soy oil hedging analysis is that both hedging and cross hedging in the soy oil market do not reduce price risk substantially.
Hedging Brazilian soy oil with either of the strategies analyzed in this research was not a particularly effective method of managing the risk of soy oil price fluctuation. In other words, the similarity-effect, which is the effect of similarity between the characteristics of the cash market and the contractual design of the futures market overcame the liquidity-effect, which tends make the greatest price correlation a result of the more efficient arbitrage available in larger liquidity markets.
Increased trading volume not only improves the correlation between cash and future prices but should also reduce transaction costs and facilitate the close of positions for traders who do not want delivery.
These benefits may spill over into soybean product cross hedges, making that price risk protection strategy more attractive. Soybean traders certainly would as they get quite inferior protection in the Chicago commodities futures exchange. It is not so apparent that speculators operating in the Brazilian soybean market benefit from hedging at the Brazilian commodity futures exchange.
The key for the success of a futures contract is in its design, which must be attractive to both traders looking to protect their investment and speculators hoping to make a quick paper profit and get out of the market. If this balance is reached, the vicious cycle of low liquidity will be ended and all parties will win. Futures and options markets- trading in commodities and financials. Englewood cliffs: Prentice-Hall, Inc. A reformulation of the portfolio model of hedging. American Journal Agricultural Economics.
A Hedging feedlot cattle: a Canadian perspective. American Journal Agricultural Economics , v. Distribution of the estimator for auto-regressive time series with unit root. Journal of American Statistical Association ,v74, The hedging performance of the new futures markets, The journal of Finance, v. Revista de Economia e Sociologia Rural. Econometric models e economic forecasts. New York: Mc Graw-Hill, E, Hedging with futures contracts. Futures and Options-theory and applications.
Cincinnati: South-Western Publishing Co. They would suggest that a hedge increases risk. In general, negative estimates occurred in the models that had the worst econometric adjustments. All the contents of this journal, except where otherwise noted, is licensed under a Creative Commons Attribution License.
Services on Demand Journal. Introduction Agricultural futures contracts have become important tools for the management of price risk. Methodology 2. Theoretical model Assuming that the hedger is a risk averse investor with a portfolio composed by two assets: one in the cash market and one in the futures market.
Analytical model 2. Calculus of the optimum hedge ratio Considering that the coefficient of the inclination of a simple regression done by least ordinary square is the same as the covariance between the dependent and the independent variables divided by the variance of the independent variable, and that the determination coefficient R 2 is the same as the square of the coefficient of linear correlation, many authors have estimated the optimum hedge ratio and hedging effectiveness using regressions between the future price and the cash price, either by level, by differences, or by relative differences 1.
Data and procedures 2 This research uses secondary daily time series data covering the period from August 05, , to September 15, Results and Discussion Results from the augmented Dickey-Fuller tests do not reject the unit root hypotheses for any of the regional prices and futures prices series. Weekly series results 3.
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I Economist, M. E-mail: danilo ufv.
From Friday to Friday, May beans were 0. Soybean oil futures closed 28 to 29 points higher.
Soybean Meal Futures - Price & Chart
Reuters - Despite the shortened holiday period, speculators pushed their bearish Chicago corn bets to seven-month highs in the most recent week while corn futures remain at historic lows due to unprecedented issues with demand. In the week ended April 14, money managers increased their net short position in CBOT corn futures and options to , contracts from , a week earlier, according to data from the U. Commodity Futures Trading Commission. Producers are showing signs of increasingly holding onto corn, as they cut their net short to 91, futures and options contracts from , in the previous week. The average producer position over all weeks on record is a net short of , contracts, and they were net long in only four weeks ever, all in April
Soybean Meal Futures
A detailed guide to Soybean meal futures from Cannon Trading, including soybean futures live along with futures contract of cereal futures, grain futures. Chart of Soybean Meal Futures futures updated August 1st, Click the chart to enlarge. Press ESC to close. Disclaimer: This material is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results. In accordance with Rule
