Sborník 2009 díl 2. - Fakulta informatiky a managementu - Univerzita ...

Anna Olszańska POSSIBILITIES OF REDUCING THE PRICE RISK CONNECTED WITH
TRANSACTIONS IN AGRICULTURAL AND FOOD PRODUCTS IN DOMESTIC
AND INTERNATIONAL MARKETS ON THE EXAMPLE OF GRAIN MARKET
However, these instruments also have some disadvantages and limitations, which
considerably decrease possibilities of their effective use. An efficiently operating
commodity exchange gives much better possibilities of protecting against risk with the
use of hedging transactions. Such transactions provide an opportunity for both parties
entering into transactions to ensure a foreseeable price, which seems to be the basic
advantage of these transactions. Limiting a price risk with the help of hedging
transactions is evidently connected with incurring some expenses related at least to a
commission on the transactions entered into and to the necessity of freezing the funds
connected with keeping open items on an exchange; however, at a large scale of
transactions, such costs are worth paying.
The basis of the hedging mechanism, that is securing prices with the use of futures
contracts on an exchange, is the fact that prices on the market of spot transactions and
over-the-counter transactions are considerably connected with the prices of futures
contracts on the exchange. It can be stated that a commodity exchange is a determinant
of these prices due to the fact that it is a very sensitive “barometer” of all changes in the
scope of demand and supply of a given product. So, if we observe an increase in
product prices on the exchange, then product prices in the spot market change in a
similar way.
Entities entering into hedging transactions on the exchange are going to make over-thecounter
transactions in the future and are afraid of unfavourable price movements. The
purpose of transactions entered into on the exchange is to secure a specific price level in
cash transactions. The principle of entering into hedging transactions is very simple –
there should be made such a transaction on the exchange, which, when closing an item
on the exchange in the future, will allow making money on a price movement we are
afraid of when planning the transaction on the cash market. So the essence of hedging
transactions is to shift the risk of changes in prices to other entities entering into
transactions on the exchange. In particular, both parties entering into a purchase-sale
transaction can be partners for each other in transactions on the exchange and the both
parties have chances to achieve their goals.
Variation in market prices of selected grains in 2004-2008
In the situation of stable functioning of the grain market, grain stocks change over time.
Their highest level is recorded after harvests. In subsequent months, the stocks keep
decreasing to achieve the lowest level just before the next harvests. The price of grain is
conditioned by the relation between supply and demand for grain in the market. So it
should increase along with decreasing stock levels. A higher price in subsequent months
after the harvests is justified also by incurring the costs of financing the stocks. Supply
of grain in the market also depends on the time of grain sale by producers, who try to
make transactions in the period most favourable for them. In connection with this,
supply of grain on the scale of a farming year can have a various distribution, and thus
cause unforeseeable, to a large extent, changes in the price level. Figures 1,2,3 present
weekly changes in market prices of wheat for human consumption, fodder barley and
fodder corn in 2004-2008.
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