Master of Science / Department of Agricultural Economics / Mykel Taylor / Forward contracts are one of the main tools used by producers to manage price risk because forward contracts shift the risk from producers to the grain elevator offering the contract. The elevators protect themselves from this risk by hedging, leaving them susceptible to basis risk, which they offset by adding a risk premium to the forward contracts they offer producers. This risk premium is affected by increased volatility and by differences in elevator-specific characteristics at elevator locations across Kansas. This study replicates the results in Taylor, Tonsor, and Dhuyvetter (2013) and adds a set of elevator-specific characteristics to measure their effect on risk premiums. A random effects generalized least squares model is estimated due to the data gathered being panel data. The contribution of this study is to further examine the drivers of risk premiums in forward contracts for Kansas wheat. The results indicate that all of the elevator-specific characteristics in the data set have a statistically significant impact on the value of risk premiums on forward contracts for Kansas wheat. The results also confirm the findings in Mallory, Etienne, and Irwin (2012) and Taylor, Tonsor, and Dhuyvetter (2013) that increased volatility post 2007 caused increases in risk premiums. The risk premiums after the structural break in 2007 increased by $0.069695/bushel, as the average risk premium prior to 2008 was $0.158682/bushel, while the average risk premium after 2007 was $0.228378/bushel.

In today’s world economy, many companies produce where it is most cost effective to produce goods, sell where it is most profitable and source capital where it is cheaper than anywhere else, without worrying about national boundaries. However, this stage were the world has reached began three decades ago with the freeing of exchange rate, capital and interest rate controls. Additional business risks have arisen as a result of this free world and they are such that interest and exchange rates have become more variable requiring innovative financial products to help companies manage these business risks. Companies can now buy financial derivatives to help manage their exposure to variable exchange rates. As such it was the purpose of this paper to assess the effectiveness of exchange traded currency futures contracts in managing exposure to exchange rates. This was to be achieved through answering two research questions (1) how successful are exchange traded futures derivatives and (2) what is the significance of these success rates. The study established that futures contracts with maturity in three, six and nine-months have 52%, 72% and 45% success rates respectively and however only the three month success rate was confirmed by hypothesis tests.

A existência de especificidade temporal na produção do confinamento de bovinos, que limita o período de negociação e busca por preços mais atrativos, corrobora com a necessidade do uso de mecanismos de hedge. Este pode ser feito pelo confinador com o uso da BM&F Bovespa, via contratos futuros e de opções, ou diretamente com os frigoríficos, por meio de contratos a termo. O objetivo desta dissertação é identificar fatores determinantes para a utilização de hedge (contratos futuros, de opções e termo) por confinadores. Foram realizadas pesquisas com confinadores participantes de eventos realizados em Ribeirão Preto-SP, em 2012 e 2013, e por telefone em 2014. Para a análise dos dados foram utilizadas estatísticas descritivas. Em seguida, com uso do Teste Exato de Fisher, foi analisada a associação das características dos confinamentos e pecuaristas ao uso do hedge. Com o intuito de identificar os determinantes para o uso de ferramentas de gestão de preços, foram elaborados modelos de regressão logística. Os resultados indicaram que o tamanho do confinamento, a escolaridade do gestor, o controle acurado de custos, o confinamento exclusivo, a utilização de hedge para os grãos, uso anterior de ferramentas e a parceria com frigoríficos têm relação com a utilização de uma ou mais formas de gestão de risco de preços do boi gordo. / The existence of temporal specificity in the production of feedlot cattle, which limits the period of negotiation and search for more attractive prices, confirms the necessity of using hedging mechanisms by feedlot cattle producers. The hedging can be done via BM&F Bovespa, through futures and options, or directly with slaughterhouses, through forward contracts. The aim of this study is identify determinants for using hedge (futures contracts, options contracts and forward contracts) by feedlot cattle producers. Surveys were applied to participants of events in Ribeirão Preto-SP, in 2012 and 2013, and via phone in 2014. Descriptive statistics of data were obtained and the determinants for using hedge were investigated using hypothesis tests. The relations between the producer\'s and feedlot\'s characteristics with hedging use were tested by Fisher Exact Test. In order to identify the determinants for the use of hedge, logistic regression models were implemented. The results have indicated that the size of the confinement, the manager\'s educational level, the high cost control, the feedlot as the only activity, the use of hedging for grains, the prior use of these tools and the partnership with slaughterhouses are related to the use of one or more ways to manage price risk of cattle.

A existência de especificidade temporal na produção do confinamento de bovinos, que limita o período de negociação e busca por preços mais atrativos, corrobora com a necessidade do uso de mecanismos de hedge. Este pode ser feito pelo confinador com o uso da BM&F Bovespa, via contratos futuros e de opções, ou diretamente com os frigoríficos, por meio de contratos a termo. O objetivo desta dissertação é identificar fatores determinantes para a utilização de hedge (contratos futuros, de opções e termo) por confinadores. Foram realizadas pesquisas com confinadores participantes de eventos realizados em Ribeirão Preto-SP, em 2012 e 2013, e por telefone em 2014. Para a análise dos dados foram utilizadas estatísticas descritivas. Em seguida, com uso do Teste Exato de Fisher, foi analisada a associação das características dos confinamentos e pecuaristas ao uso do hedge. Com o intuito de identificar os determinantes para o uso de ferramentas de gestão de preços, foram elaborados modelos de regressão logística. Os resultados indicaram que o tamanho do confinamento, a escolaridade do gestor, o controle acurado de custos, o confinamento exclusivo, a utilização de hedge para os grãos, uso anterior de ferramentas e a parceria com frigoríficos têm relação com a utilização de uma ou mais formas de gestão de risco de preços do boi gordo. / The existence of temporal specificity in the production of feedlot cattle, which limits the period of negotiation and search for more attractive prices, confirms the necessity of using hedging mechanisms by feedlot cattle producers. The hedging can be done via BM&F Bovespa, through futures and options, or directly with slaughterhouses, through forward contracts. The aim of this study is identify determinants for using hedge (futures contracts, options contracts and forward contracts) by feedlot cattle producers. Surveys were applied to participants of events in Ribeirão Preto-SP, in 2012 and 2013, and via phone in 2014. Descriptive statistics of data were obtained and the determinants for using hedge were investigated using hypothesis tests. The relations between the producer\'s and feedlot\'s characteristics with hedging use were tested by Fisher Exact Test. In order to identify the determinants for the use of hedge, logistic regression models were implemented. The results have indicated that the size of the confinement, the manager\'s educational level, the high cost control, the feedlot as the only activity, the use of hedging for grains, the prior use of these tools and the partnership with slaughterhouses are related to the use of one or more ways to manage price risk of cattle.

[pt] Finanças corporativas compreendem políticas de investimento, financiamento e dividendo cujo objetivo é maximizar o valor do acionista. Em particular, os resultados de empresas produtoras de commodities e, consequentemente, o valor para seus acionistas estão sujeitos a alta volatilidade, decorrentes da variação dos preços destes produtos no mercado global. Entretanto, o risco dessa variação pode ser mitigado ao se explorar o amplo mercado de derivativos que, em geral, está disponível para commodities. Este trabalho propõe calcular o acréscimo de valor que uma empresa produtora de commodities pode fornecer ao seu acionista pelo uso de uma política ótima de gestão de derivativos, por meio da compra ou venda de contratos a termo. Para tanto, busca maximizar o retorno aos acionistas via dividendos em um ambiente avesso a risco. O modelo assume que o preço da commodity segue um processo de Markov de estados discretos. Como o modelo é aplicado em vários estágios, o problema torna-se bastante complexo, sendo necessário usar um método de decomposição para obter a solução, sendo assim, utilizou-se o método conhecido como programação dual dinâmica estocástica. Os resultados demonstram que, ao comercializar contratos forward, uma empresa aumenta o valor percebido pelo acionista, medido pelo pagamento de dividendos, para qualquer nível de aversão a risco. A média de acréscimo de valor, considerando diferentes níveis de aversão a risco e uma premissa de precificação não viesada, é superior a 320 por cento quando comparado a empresas que não possuem acesso a tais instrumentos. Além de medir o acréscimo de valor, analisou-se também quais os fatores determinantes para a política ótima de gestão de derivativos. Foi possível identificar que a política de gestão de derivativos é muito determinada pelos preços, que por sua vez estão associados ao estado da cadeia de Markov vigente em cada estágio. / [en] Corporate finance comprises investment, financing and dividend policies aimed at maximizing shareholder value. In particular, the results of commodity producers and, consequently, the value to their shareholders are subject to high volatility, resulting from the variation of prices of these products in the global market. However, the risk of this variation can be mitigated by exploiting the broad derivatives market that is generally available for commodities. This work proposes to calculate the value increase that a commodity-producing company can provide to its shareholders through the use of an optimal derivatives management policy, by buying or selling forward contracts. To this end, it seeks to maximize shareholder returns via dividends in a risk-averse environment. The model assumes that the commodity price follows a discrete state Markov process. Since the model is applied in several stages, the problem becomes quite complex, and it is necessary to use a decomposition method to obtain the solution, so we used the method known as stochastic dynamic dual programming. The results show that by trading forward contracts, a company increases the value perceived by the shareholder, measured by the payment of dividends, to any level of risk aversion. The average value increase, considering different levels of risk aversion and an unbiased pricing assumption, is higher than 320 per cent when compared to companies that do not have access to such instruments. In addition to measuring the value increase, we also analyzed which factors determine the optimal derivatives management policy. It was possible to identify that the derivatives management policy is very determined by the prices, which in turn are associated with the state of the Markov chain in force at each stage.

[pt] O mercado brasileiro de energia elétrica ainda não encontrou um modelo de mercado e de formação de preço que garanta a expansão auto-sustentada da oferta. Investigando em detalhe o modelo atual de despacho da geração e formação do preço, demonstramos a sua pouca eficácia na atração de investimentos, e identificamos a causa dessa falha como sendo a miopia do modelo de despacho, uma vez os estados críticos do sistema só aprecem de forma significativa quando o sistema já estiver degradado. São estudados três modelos alternativos que modificam a função-objetivo ou a regra de formação do preço, ajustados de modo a viabilizar e tornar suficientemente atrativos os investimentos na expansão da oferta. Finalmente, estes modelos são então comparados entre si e com o modelo atual, quanto ao valor para o investidor e quanto ao custo para o sistema e para o consumidor. Um mercado é dito completo se permite aos agentes alocar livremente seus recursos e demandas quando estiverem disponíveis e/ou forem necessários e permite que os agentes condicionem estes recursos / demandas ao estado (preço) do mercado. Estas funcionalidades são implementadas através dos derivativos financeiros, negociados no mercado futuro. Neste trabalho fazemos uma análise conceitual do mercado futuro de energia elétrica, indicando a diferença em relação ao de outras commodities e apresentando um modelo da oferta e demanda por contratos futuros de energia elétrica. / [en] The Brazilian Market of Electrical Energy has not yet found a stable market and price model that ensues the feasibility and makes attractive a self-sustained investment for the expansion of electrical energy generation. Researching the current generation dispatch and spot price model, we show that it is ineffective to attract investments because the model is myopic, since the range of critical system states that is foreseen at the current state is not significant until the system is already too degraded. Stemming from this conclusion, we develop three alternative models, modifying the dispatch model objective and the price formation rule. These alternative models are tuned to make the investments in generation expansion feasible and attractive. The models are compared regarding their value to the investor and the cost to the system and to the consumer. A complete market allows the economic agents to freely allocate their resources and requirements whenever they are available and/or required. A complete market also allows conditional settlement, i.e., to condition the resource availability and/or requirement to a particular market state (price). These features are realized by financial derivatives, in the, so called, futures market. We present a conceptual analysis of the electrical energy s future market, pointing the differences to other commodities future markets that are due to economical unfeasibility of storing electricity. We also present an equilibrium model for the forward electrical energy contracts.

The agricultural sector plays an important role in the South African economy through job creation and earning foreign exchange. The role of agricultural co-operatives increased substantially over the last few decades. The research focuses firstly on the identification of derivative instruments in the market and their applicability to mitigate financial risks co-operatives experience. Secondly, research is conducted about the extent to which co-operatives use these derivatives to hedge financial risks. The research shows that most co-operatives are exposed to financial risks through different activities. It is, however, evident that although the derivative instruments are available, not all co-operatives make use of these instruments. Recommendations for further research include the development of a risk management framework and determining the different economic factors that have an influence on the use of derivatives by South African agricultural co-operatives. / Business Management / M.Comm.

[pt] O preço da energia no mercado de curto-prazo é caracterizado pela sua alta volatilidade e dificuldade de previsão, representando um alto risco para agentes produtores de energia, especialmente para geradores por fontes renováveis. A abordagem típica empregada por tais empresas para obter a estratégia de contratação ótima de médio e longo prazos é simular um conjunto de caminhos para os fatores de incerteza a fim de caracterizar a distribuição de probabilidade da receita futura e, então, otimizar o portfólio da empresa, maximizando o seu equivalente certo. Contudo, na prática, a modelagem e simulação do preço de curto prazo da energia é um grande desafio para os agentes do setor elétrico devido a sua alta dependência a parâmetros que são difíceis de prever no médio e longo, como o crescimento do PIB, variação da demanda, entrada de novos agentes no mercado, alterações regulatórias, entre outras. Neste sentido, nesta dissertação, utilizamos otimização robusta para tratar a incerteza presente na distribuição do preço de curto-prazo da energia, enquanto a produção de energia renovável é tratada com cenários simulados exógenos, como é comum em programação estocástica. Mostramos, também, que esta abordagem pode ser interpretada a partir de dois pontos de vista: teste de estresse e aversão à ambiguidade. Com relação ao último, apresentamos um link entre otimização robusta e teoria de ambiguidade. Além disso, incluímos no modelo de formação de portfólio ótimo a possibilidade de considerar um contrato de opção térmica de compra para o hedge do portfólio do agente contra a irregularidade do preço de curto-prazo. Por fim, é apresentado um estudo de caso com dados realistas do sistema elétrico brasileiro para ilustrar a aplicabilidade da metodologia proposta. / [en] Energy spot price is characterized by its high volatility and difficult prediction, representing a major risk for energy companies, especially those that rely on renewable generation. The typical approach employed by such companies to address their mid- and long-term optimal contracting strategy is to simulate a large set of paths for the uncertainty factors to characterize the probability distribution of the future income and, then, optimize the company s portfolio to maximize its certainty equivalent. In practice, however, spot price modeling and simulation is a big challenge for agents due to its high dependence on parameters that are difficult to predict, e.g., GDP growth, demand variation, entrance of new market players, regulatory changes, just to name a few. In this sense, in this dissertation, we make use of robust optimization to treat the uncertainty on spot price distribution while renewable production remains accounted for by exogenously simulated scenarios, as is customary in stochastic programming. We show that this approach can be interpreted from two different point of views: stress test and aversion to ambiguity. Regarding the latter, we provide a link between robust optimization and ambiguity theory, which was an open gap in decision theory. Moreover, we include into the optimal portfolio model, the possibility to consider an energy call option contract to hedge the agent s portfolio against price spikes. A case study with realistic data from the Brazilian system is shown to illustrate the applicability of the proposed methodology.

The agricultural sector plays an important role in the South African economy through job creation and earning foreign exchange. The role of agricultural co-operatives increased substantially over the last few decades. The research focuses firstly on the identification of derivative instruments in the market and their applicability to mitigate financial risks co-operatives experience. Secondly, research is conducted about the extent to which co-operatives use these derivatives to hedge financial risks. The research shows that most co-operatives are exposed to financial risks through different activities. It is, however, evident that although the derivative instruments are available, not all co-operatives make use of these instruments. Recommendations for further research include the development of a risk management framework and determining the different economic factors that have an influence on the use of derivatives by South African agricultural co-operatives. / Business Management / M.Comm.

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