Using Econometric Models to Manage the Price Risk of Cocoa Beans: A Case from India

This study aims at developing econometric models to manage the price risk of Dry and Wet Cocoa beans with the help of ARIMA (Autoregressive Integrated Moving Average) and VAR (Vector Auto Regressive). The monthly price of Cocoa beans is collected for the period starting from April 2009 to March 2020...

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Bibliographic Details
Published in:Risks (Basel) 2022-06, Vol.10 (6), p.115
Main Authors: Kumar, Kepulaje Abhaya, Spulbar, Cristi, Pinto, Prakash, Hawaldar, Iqbal Thonse, Birau, Ramona, Joisa, Jyeshtaraja
Format: Article
Language:English
Subjects:
Agricultural commodities
Agriculture
ARIMA models
Cocoa
Commodity prices
Economic reform
Exports
financial market
Futures
Hedging
Plantations
price risk
risk management
Securities markets
Time series
VAR
Volatility
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Summary:This study aims at developing econometric models to manage the price risk of Dry and Wet Cocoa beans with the help of ARIMA (Autoregressive Integrated Moving Average) and VAR (Vector Auto Regressive). The monthly price of Cocoa beans is collected for the period starting from April 2009 to March 2020 from the office of CAMPCO Limited, Mangalore, and the ICE Cocoa futures price from the website of investing.com. The augmented dickey fuller test is used to test the stationarity of the series. The ACF and PACF correlograms are used to identify the tentative ARIMA model. Akaike information criterion (AIC) and Schwarz criterion (SBIC), Sigma square, and adjusted R2 are used to decide on the optional AR and MA terms for the models. Durbin–Watson statistics and correlograms of the residuals are used to decide on the model’s goodness of fit. Identified optimal models were ARIMA (1, 1, 0) for the Dry Cocoa beans price series and ARIMA (1, 1, 2) for the Wet Cocoa beans price series. The multivariate VAR (1) model found that the US and London Cocoa futures prices traded on the ICE platform will influence the price of Dry Cocoa in India. This study will be helpful to forecast the price of Cocoa beans to manage the price risk, precisely for Cocoa traders, Chocolate manufacturers, Cocoa growers, and the government for planning and decision-making purposes.
ISSN:2227-9091
2227-9091
DOI:10.3390/risks10060115