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Cotton Futures Hedging Strategy Analysis

Author: RenYan
Tutor: FangNengSheng
School: Southwestern University of Finance and Economics
Course: Financial
Keywords: Futures Hedging Fundamental Analysis Huamao Corp
CLC: F724.5
Type: Master's thesis
Year: 2013
Downloads: 157
Quote: 0
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Main points:(?) Supply and demand structure:International Cotton nowadays is under a oversupply situation. From the demand side, the global economic cycle makes cotton manufacturing industry downturn in performance, which makes a great reduced in the demand of cotton. From the supply side, global cotton production was increasing year after year, making global cotton severe oversupply situation. China, as a big country in the demand of cotton, has been the perennial shortage situation in the cotton, but with the domestic cotton industry has declined by the economic cycle, the needs decreased, resulting in China’s cotton imports gradually reduce.(?) Related factors:Drought in USA and floods in China which took place in July, have a very limited impact on the international and domestic cotton supply generated. The12th Five-Year Plan of domestic textile industry put downward pressure on domestic cotton price. And so as the new tariff policies.(?) Market outlook:In the coming year, I expect the continuation of the supply and demand pattern will continue to affect the international and domestic cotton prices downward. And this trend is expected to continue until the second quarter of next year when the economic recovery.(?) Hedging strategies:Based on the fundamental analyze, I suggest the Huamao Corp. to sell1067hand CF futures contracts every quarter in the domestic cotton futures market, to hedge the risk of cotton prices fell. (?) Pre-assessment:The pre-assessment in three deferent assume shows that, no matter if the price of cotton increase as I expected or declines,the hedging strategies will benefit the company.Main contribution:(?) Perspective:In this paper, I use a typical cotton company as a case observations that may be encountered in the future risk of fluctuations in the price of cotton, and proposed targeted hedging strategy, involving the direction of its hedging strategy, marketing strategy, the best ratio strategy, in order to help the company avoid the risk in future, which has double the value both on the theory and practice(?) Logic:This article is structured as the following logic:Firstly, make a fundamental analysis of cotton futures price. Then, digging the firm’s cotton demand from its financial reports. Finally, compose a useful hedging strategy and make a pre-assessment.(?) Method:This article mainly use three kind of method:the Fundamental Analysis, the Financial Statements Analysis, and the risk management theory Value at Risk.

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CLC: > Economic > Trade and Economic > China's domestic trade and economic > Circulation of commodities > Futures Trading
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