Application of Hedge Technologies to Minimize Price Risks by Agricultural Producers

Abstract

The article is devoted to substantiation of methodological aspects of application of hedge technologies of minimization of price risks of agricultural commodity producers. It is substantiated that the inelastic supply of agricultural products in relation to changes in market prices leads to fairly high price risks for farmers. The authors emphasize that thanks to hedging tools already during the sowing campaign, the agricultural producer can set a price at which he will be able to sell his harvest in the future. It has been proven that the advantages of hedging include the confidence of the agricultural producer that he will receive some pre-established income and intermediaries are protected from possible market fluctuations. It is stated that a forward contract is the cheapest and easiest way to hedge (protect) price risks as the supply of agricultural products is inelastic in relation to changes in market prices, which leads to fairly high price risks of agricultural producers. Within the limits of development of recommendations, the authors’ research of separate strategies caused allocation of the basic indicators and terms of their application on the exchange market by different categories of traders, therefore the proposed method of developing costs and revenues from the use of exchange rate strategies demonstrates the feasibility of using hedging in any direction of change in the price environment.