Risk Management of Agriculture Commodity at Indonesia Futures Market: A Literature Study

International Journal of Economics and Management Studies

© 2021 by SSRG - IJEMS Journal

Volume 8 Issue 7

Year of Publication : 2021

Authors : Pramesti Wulandari Santoso, Perdana Wahyu Santosa

10.14445/23939125/IJEMS-V8I7P110

How to Cite?

Pramesti Wulandari Santoso, Perdana Wahyu Santosa, "Risk Management of Agriculture Commodity at Indonesia Futures Market: A Literature Study," SSRG International Journal of Economics and Management Studies, vol. 8,  no. 7, pp. 87-92, 2021. Crossref, https://doi.org/10.14445/23939125/IJEMS-V8I7P110

Abstract:

According to a literature study, this article attempts to answer how farmers and agribusinesses should face the risk of agriculture commodity price volatility. In the current economy, farmers and agribusiness companies face high risks due to the emergence of specific new factors, such as increased volatility in input and output prices, climate change, restrictions on international trade, US-China trade war, higher food safety standards, and public awareness about the environment and halal guarantee. Markets of commodity futures play an essential role in price formation, which helps farmers/producers prepare their production, processing, storage, and marketing planning of commodities. The agricultural sector's current critical problem is price risk, which often creates losses among producers (farmers). It is not uncommon for farmers to bear losses and debt burdens due to high commodity price volatility and falling prices during the harvest. An important question that has become a topic of debate in agriculture is whether commodity price volatility stems from speculation in the futures market or whether this volatility reflects the underlying economic fundamentals. In this context, there is a growing concern that commodity derivative investments based on replicating futures index have become an independent source of price behavior and lead to current price volatility patterns in this market.

Keywords:

Agriculture commodity, Price volatility, Risk, Hedging, Speculation, Futures markets

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