Abstract

Due to the unpredictability of politics, the economy, and pandemics, the price of commodities has been erratic throughout the past year. As a result, investing in commodities is seen as a desirable way to diversify a portfolio and reduce market risk. One of the biggest issues in investments is risk management, so investors must employ a technique to help them reduce their risk. Futures contracts, one type of derivative, are used as a tool to efficiently control the risks associated with investments. This research investigates the impact of the future contract price on the commodities market price in the agricultural commercial market in Vietnam: Case of Robusta and Arabica coffee. To answer the research question, we will collect the time series of future contract price and spot market price of coffee from August 2019 to June 2022 and we use the regression analysis and serial autocorrelation test to evaluate these variables. The major results of the research indicate that the future contract price of Robusta affects directly on the spot price whereas the futures contract price of Arabica has no correlation with the spot price. Thus, we recommend the investors and the farmer should use the future contract to hedge the price of coffee in the spot market.

Keywords

Coffee, Arabica, Robusta, Future contract, Hedging, Risk Management