Risk insurance against commodity price fluctuations on the example of wheat futures

Abstract

The purpose of the article is to substantiate the expediency of hedging the risk of a decrease in revenue based on derivative financial instruments using the example of wheat futures. The study used such methods of scientific research as analysis and synthesis, logical method and comparative analysis. The possibility and expediency of risk insurance of agricultural enterprises using wheat futures contracts was investigated. An analysis of the wheat market of Ukraine was carried out. The main stages of selling and factors affecting the prices of wheat were studied. The process of selling includes such basic stages as assessment of grain quality and volumes, buyer's choice and determination the most successful time for sale. The price of wheat is influenced by such main factors as productivity, the region and weather conditions, the geopolitical situation in the world, the activity of grain traders, the peculiarities of logistics and exchange rate fluctuations. For a profitable grain trade, it is important to forecast the future price. The expected prices are determined by grain export market trends, grain quality, supply and demand, competition, wheat stocks in warehouses, and other factors. It was performed analysis of prices for agricultural crops in different regions of the world on FOB delivery terms, grain price dynamics in Ukraine on EXW delivery terms, as well as logistical problems with wheat transportation to foreign buyers. A methodical approach for calculating the financial results of futures contracts with monetary settlement is investigated. The approach is concluded for the purpose of insuring the risk of a decrease in revenue from the sale of wheat due to a price decrease from the point of view of a seller who takes a short position. The practical value of the research is that its results can be used to justify the feasibility of using wheat futures for hedging purposes by agricultural enterprises.