Hedging – Possibilities of Risk Management in Agriculture

Tomić, Vedran and Bradić-Martinović, Aleksandra (2015) Hedging – Possibilities of Risk Management in Agriculture. In: Sustainable agriculture and rural development in terms of the republic of Serbia strategic goals realization within the Danube region“ - regional specificities -. Institute of Agricultural Economics Belgrade, Belgrade, pp. 481-498. ISBN 978-86-6269-046-3

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Abstract

The scope of agricultural production is to a great extent affected by volatile risks. This paper presents possibilities that financial markets provide to manage such risks. It minutely describes basic derivatives, futures and options, with a special focus on their use on agricultural commodities. The paper further describes probably the most popular futures – weather futures. Furthermore, the authors deal with complex and cross-hedging strategies. The last section brings the analysis of possibilities of establishing a derivatives market in Serbia. The first step towards this goal is to set up a commodity market and adopt related legislation, but also to meet other preconditions, such as to establish a licensing system, simplify trade with foreign entities, establish a system of clearing, develop a framework for extra-judicial settlement and to work on internationalisation of trade. Once these preconditions are met, it would be possible to establish an agricultural commodity derivatives trading system.

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