AGRICULTURAL COMMODITIES DERIVATIVES MARKETS
Learning outcomes of the course unit
At the end of the course students will have acquired the knowledge to understand the mechanism by which a food chain enterprise can hedge price risk and the context where derivatives operate. The course is organized around six key themes:
• the "physical" market;
• commodity fundamental analysis;
• origin, mechanics and regulation of the Commodity Exchange;
• speculators and hedgers;
• price risk and basis risk;
• hedging strategy
A detailed syllabus with allocation of time to specific topics will be provided at the beginning of the course. This calendar is for planning purpose only and is tentative, actual allocation of time will depend on the overall class progress.
The instructor may make adjustment as necessary: please check the teacher’s website for announcements, additional readings and resources.
On the basis of the topics, the student will be able to apply the knowledge gained in taking management decisions in a food company in any functional area. His/her sphere of action will range from market research initiatives to improving economic efficiency, including the supply of raw materials.
On the basis of the topics the student will evaluate effectiveness of hedging and the way in which decisions are made to manage price risk consistently with the characteristics and needs of the company.
The student will acquire the critical skills to address the problems of corporate finance in a broader perspective than purely operational will have a good understanding of the dynamics that occur at the level of the agri-food markets.
Communication skills developed will focus on appropriate terminology and knowing how to work in groups in order to interact at the various functional levels of a business organization.
A hedging project is developed during the course with the collaboration of colleagues and classroom discussion. This activity is aimed at enhancing the ability to learn by applying a logical method to identifying problems and stimulating a critical evaluation of the solutions adopted.
Course contents summary
The course is designed to provide concepts and tools to understand and evaluate the futures markets of agricultural products and foodstuffs.
The first part of the course focuses on Commodity Exchanges, with particular reference to the contractual mechanisms and their operations. The futures markets perform different functions: provide a tool to transfer price risk, increase transparency and, lastly, represent a new asset class for financial investors, such as fund managers and swap dealers, who were not traditionally interested in agricultural products.
In the agro-food systems of developed countries, agricultural commodity derivatives have increased in importance, because they regulate the formation of commodity prices, and also because they are a unique tool for the management of price risk.
The second part of the course outlines speculation and hedging strategies using real financial market data on agricultural commodities from the US and in Europe. The choice of hedging strategy reflects the type of company: each category of operators in the food chain has a potential interest in hedging, but hedging has specific and different connotations and features for each category.
Students who attend classes regularly will write two individual papers to be discussed in the classroom and on the occasion of the final test.
The reference texts include the teaching materials used during the course, which will be made available on the instructor's webpage. At the conclusion of the course materials produced during lessons will be available at the Photocopy Service of the Department of Economics as "Teaching materials for the course of Financial Markets of Agricultural Commodity".
Certain chapters of the following textbooks are important class materials for the exam:
- S. Serra, M. Zuppiroli: Il commercio dei cereali, Edagricole - Edizioni Agricole Sole 24 Ore, Milano, 2009 ................... [Chapters 4, 5 and 6].
- C.A. Carter: Futures and Options Markets. An Introduction, Waveland Press Inc., Long Grove, Illinois, 2007 .................. [Chapters 1, 2, 3 and 7]
The teaching methods are designed for the objectives stated above.
The course consists of lectures combined with individual work. The lectures will discuss general issues related to the operation of the agri-food markets and derivatives of agricultural commodities in particular.
The meanings of common terms used in the financial markets of food commodities will also be presented.
The ability to apply knowledge will be assessed with exercises and the projects carried out and discussed in the classroom with colleagues and with the teacher. These activities improve independence of judgment and the ability to communicate with appropriate technical language.
Assessment methods and criteria
The assessment of students who attend a high proportion of the course is through an oral exam in which they discuss the results of the project and the whole process of its development. Knowledge and understanding will be assessed with questions focusing on the most important points covered during the lectures.
The factors that will be taken into account to determine the final score are as follows:
Factor and approximate weight:
Class participation 15%
Compliance with deadlines for completion of the phases of the project 20%
Ability to discuss the project in contradiction with the teacher 15%
Knowledge and understanding ascertained 25%
Communication skills and knowledge of specialist vocabulary 15%
For students who have not attended three quarters of the lessons, or who do not intend to take the oral test, assessment is by way of a written test consisting of four open-ended questions, focusing on the reference texts.
Details on exam procedures and academic behavior can be found in the Guidelines (http://www.dipartimentoeconomia.unipr.it/sites/st04/files/allegatiparagr... ) and in the Code approved by the Dipartimento di Economia (http://www.dipartimentoeconomia.unipr.it/it/codice-di-comportamento ).