Abstract
The aim of the paper is to determine the possibilities of implementing hedging strategies of Serbian agricultural producers on foreign commodity exchanges. Considerable fluctuations in prices of agricultural products in Serbia create the need for the use of futures in commodity exchanges in order to protect against unfavourable change in prices of agricultural products in the future period. Due to the fact that Serbia has not established the trading in commodity derivatives, Serbian producers are having to use developed commodity exchanges abroad. The paper analyses the possibilities of using the Chicago Mercantile Exchange in the USA and the MATIF commodity exchange in Paris, looking at two aspects of the activities. First, the correlation of corn prices on domestic and foreign commodity exchanges was investigated, given that it is the basic prerequisite for the application of successful hedging strategies and, secondly, legal requirements, primarily tax policies related to trade of futures contracts. This paper has found that there is a high correlation between the crops price in the foreign commodity markets and spot market in Serbia, which provides a solid basis for the implementation of hedging strategies for underlying assets in foreign commodity markets. However, it has been found that inadequate taxation policy is an aggravating factor for the implementation of hedging strategies.
Highlights
The agricultural sector is one of the economy sectors with the highest business risk
A significant fluctuation in prices of agricultural products has led to a considerable need for farmers to manage this market risk
Hedging strategies are based on the purchase and sale of highly standardized futures and options contracts, Despite the fact that there is a legal possibility for the development of derivative commodity exchanges in Serbia, based on the Law on Capital Market, this market has not yet developed in Serbia
Summary
The agricultural sector is one of the economy sectors with the highest business risk. For successful business operations, it is necessary to efficiently manage the price risk of agricultural products (Zakić and Vasiljević, 2013). Not all instruments for managing the price risk are available to Serbian agricultural producers due to the underdeveloped commodity exchanges in Serbia. The price volatility of agricultural products in the last decade has caused a high business risk in the agricultural sector of Serbia. The main hypothesis in this paper is that is possible for Serbian farmers to apply hedging strategies on foreign commodity exchanges. The possibility of applying hedging strategies would improve the risk management segment in Serbian agricultural sector
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