Agric. Econ. - Czech, 2021, 67(10):423-434 | DOI: 10.17221/28/2021-AGRICECON

Crude oil futures to manage the price risk of natural rubber: Empirical evidence from IndiaOriginal Paper

Kepulaje Abhaya Kumar1, Prakash Pinto2, Iqbal Thonse Hawaldar3, Cristi Spulbar4, Ramona Birau ORCID...*,5
1 Department of Business Administration, Mangalore Institute of Technology & Engineering, Moodabidri, India
2 Department of Business Administration, St. Joseph Engineering College, Mangalore, India
3 Department of Accounting & Finance, College of Business Administration, Kingdom University, Sanad, Bahrain
4 Department of Finance, Banking and Economic Analysis, Faculty of Economics and Business Administration, University of Craiova, Craiova, Romania
5 Faculty of Education Science, Law and Public Administration, Constantin Brâncuși University of Târgu Jiu, Târgu Jiu, Romania

The trading of natural rubber derivatives in the Indian commodity exchanges was banned several times in the past. Hence, in India, the derivatives on natural rubber are not traded actively and regularly. We have examined the possibility of a forecast model and a cross hedge tool for the natural rubber price by using crude oil futures in India. Results of the Johansen cointegration test proved that there is no cointegration equation in the model; hence, there is no scope to develop long-run models or error correction models. We have developed a vector autoregressive [VAR(2)] model to forecast the rubber price, and we examined the possibility of a cross hedge for natural rubber further by using the Pearson correlation coefficient and Granger causality test. We have extended our research to a structural VAR analysis to examine the effect of crude futures and exchange rate shocks on the natural rubber price. Our results showed that there is a short-term relationship between the crude oil futures price, the exchange rates of the US dollar to the Indian rupee, the Malaysian ringgit to the Indian rupee and the Thai baht to the Indian rupee; and the natural rubber price in India. The effort of policymakers to cause the Indian rupee to appreciate against the Thai baht and Malaysian ringgit may increase the natural rubber price in India. Natural rubber traders, growers and consumers can use crude futures to hedge the price risk. The Indian Rubber Board can suggest the VAR(2) model to predict the short-run price for natural rubber.

Keywords: cointegration; cross hedge; exchange rates; oil future; vector autoregressive model

Published: October 26, 2021  Show citation

ACS AIP APA ASA Harvard Chicago Chicago Notes IEEE ISO690 MLA NLM Turabian Vancouver
Kumar KA, Pinto P, Hawaldar IT, Spulbar C, Birau R. Crude oil futures to manage the price risk of natural rubber: Empirical evidence from India. Agric. Econ. - Czech. 2021;67(10):423-434. doi: 10.17221/28/2021-AGRICECON.
Share...
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Arunwarakorn S., Suthiwartnarueput K., Pornchaiwiseskul P. (2019): Forecasting equilibrium quantity and price on the world natural rubber market. Kasetsart Journal of Social Sciences, 40: 8-16.
    2. Barbaglia L., Croux C., Wilms I. (2020): Volatility spillovers in commodity markets: A large t-vector autoregressive approach. Energy Economics, 85: 1-11. Brooks C. (2008): Econometrics Introduction. 2nd Ed. New York, USA, Cambridge University Press: 290-308. Go to original source...
    3. Burger K., Smit H., Vogelvang B. (2002): Exchange rates and natural rubber prices, the effect of the Asian crisis. In: Exploring Diversity in the European Agri-Food System, Zaragoza, Spain, 28-31 Aug, 2002: 1-22.
    4. Chance D.M. (2000): Derivatives and Risk Management. 5th Ed. USA, Harcourt College Publishers: 401-420.
    5. Charfeddine L., Kahia M. (2019): Impact of renewable energy consumption and financial development on CO2 emissions and economic growth in the MENA region: A panel vector autoregressive (PVAR) analysis. Renewable Energy, 139: 198-213. Go to original source...
    6. Chaudhry A., Kalim S., Bukhari H. (2013): A structural VAR analysis of the impact of macroeconomic shocks on Pakistan's textile exports. Economic Modelling, 32: 302-315. Go to original source...
    7. Citak F. (2018): Exchange rate and Turkish tourism trade. International Journal of Economics and Financial Issues, 8: 206-213.
    8. Crude Oil Futures (2020): Crude oil futures. [Dataset]. Multi Commodity Exchange of India Ltd. Available at https://www.mcxindia.com/market-data/bhavcopy (accessed Mar 15, 2020).
    9. Datta H., Debnath H., Shil P. (2019): Production and productivity of natural rubber: A study on growth-trends of rubber plantation in Tripura. International Journal of Management, 10: 115-131. Go to original source...
    10. Exchange Rates (2020): USD/INR: Historical Data. [Dataset]. Available at https://finance.yahoo.com/quote/USDINR%3DX/history?p=USDINR%3DX (accessed May 23, 2021).
    11. Gatarek L., Johansen S. (2014): Optimal hedging with the vector autoregressive model. Tinbergen Institute Discussion Paper, 22: 1-20. Go to original source...
    12. Goh H.H., Tan K.L., Khor C.Y., Ng S.L. (2016): Volatility and market risk of rubber price in Malaysia: Pre- and post-global financial crisis. Journal of Quantitative Economics, 14: 323-344. Go to original source...
    13. GoI (2019): National Rubber Policy 2019. Department of Commerce, Ministry of Commerce and Industry, Government of India (GoI): 1-25.
    14. Gujarati D.N., Porter D.C., Gunasekar S. (2009): Basic Econometrics. 5th Ed. Mumbai, India, Mc Graw Hill Education: 821-831.
    15. Hawaldar I.T., Ullal M.S., Birau F.R., Spulbar C.M. (2019): Trapping fake discounts as drivers of real revenues and their impact on consumer's behavior in India: A case study. Sustainability, 11: 1-20. Go to original source...
    16. Hossain A., Kamruzzaman M., Ali M.A. (2015): Vector autoregressive (VAR) modeling and projection of DSE. Chinese Business Review, 14: 273-289. Go to original source...
    17. Hull J.C. (2015): Option Futures and Other Derivatives. 9th Ed. New York, USA, Pearson: 50-60.
    18. Joseph K.J., Thapa N., Wicken O. (2018): Innovation and natural resource-based development: Case of natural rubber sector in Kerala, India. Innovation and Development, 8: 125-146. Go to original source...
    19. Kannan M. (2013): The determinants of production and export of natural rubber in India. Journal of Economics and Finance, 1: 41-45. Go to original source...
    20. Khin A.A., Leh Bin R.L., Keong O.C., Yie F.W., Jye Liang N. (2019): Crittical factors of the natural rubber price instability in the world market. Humanities & Social Sciences Reviews, 7: 199-208. Go to original source...
    21. Kumar N.P. (2017): Tourism led growth the case of India. South Asian Journal of Management Research, 9: 751-757.
    22. Lekshmi S., Moganakumar S., Tharian G.K. (1996): The trend and pattern of natural rubber price in India: An exploratory analysis. Indian Journal of Natural Rubber Research, 9: 82-92.
    23. Mills T.C., Patterson K. (2009): Palgrave Handbook of Econometrics. Vol. 2. London, United Kingdom, Palgrave Macmillan: 266-275. Go to original source...
    24. Misurelli D., Cantrell R. (1997): Industry & Trade Summary. Synthetic Rubber. Washington, D.C., USA, U.S. International Trade Commission (USITC) Publication: 1-27.
    25. Nambiar R.S., Balasubramanian P. (2016): A study on the impact of fall in ruber prices with respect to farmers in Kottayam district. International Journal of Applied Business and Economic Research, 14: 10463-10478.
    26. Narayan P., Narayan S., Prasad A. (2008): A structural VAR analysis of electricity consumption and real GDP: Evidence from the G7 countries. Energy Policy, 36: 2765-2769. Go to original source...
    27. Natural Rubber Price in India (2020): Daily Market Price. [Dataset]. The Rubber Board (Ministry of Commerce & Industry, Government of India). Available at http://indiannaturalrubber.com/market_price_daily.aspx (accessed Mar 15, 2021).
    28. Nkcubeko Nomsobo A., Roscoe van Wyk B. (2018): The impact of short-term interest rates on bank funding costs. Journal of Economics and Behavioral Studies, 10: 141-148. Go to original source...
    29. Pablo J., Arias M. (2019): Relationship between the consumer price index and the producer price index for six South American countries. Apuntes Del CENES, 37: 39-74. Go to original source...
    30. Pareed A.O., Kumaran M.P. (2017): Price volatility and its impact on rubber cultivation in India - An analysis of recent trends. Journal Academic Research in Economics, 9: 293-312.
    31. Raju K.V. (2016): Instability in natural rubber prices in India: An empirical analysis. IOSR Journal of Economics and Finance, 7: 24-28.
    32. Sims A.C. (1972): Money, income, and causality. American Economic Review, 62: 540-552.
    33. Tran T.L. (2020): Risk assessment of the economic efficiency of rubber production: Case of smallholder rubber production in QuangBinh Province, Vietnam. African Journal of Agricultural Research, 16: 567-573. Go to original source...
    34. Tulasombat S., Bunchapattanasakda C., Ratanakomut S. (2015): The effect of exchange rates on agricultural goods for export: A case of Thailand. Information Management and Business Review, 7: 1-11. Go to original source...
    35. Su C.-W., Liu L., Tao R., Lobont O.R. (2019): Do natural rubber price bubbles occur? Agricultural Economics, 2: 67-73. Go to original source...
    36. Zahari F.Z., Khalid K., Roslan R., Sufahani S., Mohamad M., Rusiman M.S., Ali M. (2017): Forecasting natural rubber price in Malaysia using ARIMA. Journal of Physics, 995 (Conference Series): 1-7. Go to original source...
    37. Zwart A.C., Blandford D. (1989): Market intervention and international price stability. American Journal of Agricultural Economics, 71: 379-388. Go to original source...

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International (CC BY NC 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content