Demo report on forward and future contracts in Portugal
An online presentation was given on the 6th of September 2021 to a group of beef farmers. This included two presentations. One given by Professor Pedro Rino Vieira from the Superior Institute of Economics and Management- University of Lisbon, and another one by Tomás Machado, an MSc student at the Faculty of Veterinary medicine and working with BovINE.
The webinar has seen the participation of 38 attendees, of which 18 suckler cow farms, 12 advisors, 7 researcher and 1 representative of a media partner.
Benefits: Mainly we can mention its strong regulation and organization of the market, making the risk of default by the counterparty negligible, which makes this type of contract very effective and safe in risk management.
Obstacles:
1. Find an experienced financial intermediary to help operationalize this type of hedging instrument;
2. Provide training to farmers so that they understand the specificities of this type of contracts and know how to access information about these products and markets.
Additional costs and savings: This is a risk management tool that will fix a given price. This means, that when compared with the spot price, at the date of the deal, farmers may pay/receive less or more than the current market price. Moreover, managing these contracts will imply some additional costs.
Recommendation: The reaction of most participants was positive, with a willingness to recommend this risk management tool as it is a useful tool for fix a given price, not forgetting the concern of producers regarding the mediation of these contracts by financial institutions.
Author: Kees de Roest (CRPA) and Magda Fontes (FMV)