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Revista de Economia e Sociologia Rural

Print version ISSN 0103-2003

Abstract

SILVEIRA, Rodrigo Lanna Franco da  and  FERREIRA FILHO, Joaquim Bento de Souza. Analisys of feeder cattle cross hedge and live cattle hedge at BM&F futures market. Rev. Econ. Sociol. Rural [online]. 2003, vol.41, n.4, pp.881-899. ISSN 0103-2003.  https://doi.org/10.1590/S0103-20032003000400008.

The aim of the study is to analyze the feeder cattle cross hedge at BM&F Futures Market verifying the real need of the existence of futures contract for this commodity. Basis risk of these operations was calculated, as well as the optimal hedge ratios and the respective effectiveness in the main commercialization regions of bovine cattle in Brazil, for the period comprised between September of 1995 and February of 2001. The same analyzes were carried for the live cattle hedge. The optimum hedge ratio appeared high in the cross hedge (between 37% and 49%) and in the own hedge (between 58% and 63%). The own hedge figures mean a 50% reduction in price risk when hedging at the optimal ratio, a value that drops consistently to about 1,5% for all regions when the cross hedge is considered. The main conclusion of the study is that the BM&F live cattle future markets are quite effective as a price risk reduction strategy for the own hedge operations, but lack effectiveness in this sense for the feeder cattle cross hedge. That is caused by the high basis risk of these operations, around 80% higher than the risk associated to the live cattle hedge during the contract maturity week considered in this period. This way, the results show the BM&F's hit for the recent introduction of the feeder cattle futures contract.

Keywords : futures market; feeder cattle; cross hedge.

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