Hedge simulation for for beef cattle farmers in Brazil

Abstract

Cutting livestock is an important part of the Brazilian economy, consequently, variations in the prices of certain products can impact the whole productive chain of the country, which requires better tools to improve the competitiveness of the products. To improve risk management in fragile companies to fluctuations in commodity prices, the use of derivatives to hedge is a tool known in other countries. However, in Brazil, the necessary technical knowledge is inaccessible to small and medium-sized producers, who have their profit margins dependent on the price of their commodity. In addition, the presence of livestock is strong, so producers need to keep in mind the alternatives that exist to mitigate their risks in relation to the prices. Thus, a questionnaire was applied with producers to understand how the use of derivatives occurs and if it exists, later comparing with other similar studies in different situations. We also examine a hedge simulation, for demonstrating possible results that the financial operation was able to obtain (in the given period) while elucidating the adversities of the tool to the producer. Due to the period chosen in the simulation, the results were positive and presented a good alternative. However, the impact of the costs and the possibility of having reservations to perform the operation were highlighted.