1. Non-Commodity Agricultural Price Hedging with Minimum Tracking Error Portfolios: The Case of Mexican Hass Avocado.
- Author
-
Torre-Torres, Oscar V. De la, del Río-Rama, María de la Cruz, and José, Álvarez-García
- Subjects
FARM produce prices ,COMMODITY futures ,PORTFOLIO management (Investments) ,HEDGING (Finance) ,PRICES ,AGRICULTURAL prices - Abstract
The present paper tests the use of an agricultural futures minimum tracking error portfolio to replicate the price of the Mexican Hass avocado (a non-commodity). The motivation is that this portfolio could be used to balance the basis risk that the avocado price hedge issuer could face. By performing a backtest of a theoretical avocado producer from January 2000 to September 2023, the results show that the avocado producer could hedge the avocado price by 94%, with the hedge offered by a theoretical financial or government institution. Also, this issuer could balance the risk of such a hedge by buying a coffee–sugar futures portfolio. The cointegrated or long-term relationship shows that using such a futures portfolio is useful for Mexican Hass avocado price hedging. This paper stands as one of the first in testing futures portfolios to offer a synthetic hedge of non-commodities through a commodities' futures portfolio. [ABSTRACT FROM AUTHOR]
- Published
- 2024
- Full Text
- View/download PDF