MEXICAN CORN (Zea mays L.) PRICE HEDGE FEASIBILITY WITH THE US FOREIGN FUTURES MARKET

Abstract

 Price risk management for corn production has a support price component; however, this is not universal and the operating rules themselves indicate that producers having over 20 ha are not eligible. This reveals part of the national corn production that has yet to manage price risk. A price risk management tool is a derivative market, which is non-existent in Mexico. An alternative is to manage this risk in a foreign futures market, which requires setting a price in a foreign currency under the conditions of that foreign market. For such hedge to be potentially efficient, the necessity of a stable relationship between domestic prices, future foreign prices and the exchange rate is essential; using a vector time series approach, the assessed hypothesis includes a cointegrating vector between the domestic price, future price and exchange rate variables, and therefore shows an effective risk management of the domestic price of corn (Zea mays L.) from the future corn price quoted in Chicago. Results show that the existence of a long-term relationship between the domestic and future prices of corn with the exchange rate mediation cannot be rejected. This implies the existence of a hedging potential, despite a foreign future price and the peso-dollar exchange rate itself.