Dados do Trabalho

Título

Financial risk quantification of Brazilian raw milk prices using Value at Risk

Titulo em português

Quantificação do risco financeiro dos preços de leite do Brasil usando Value at Risk

Introdução (obrigatório)

Milk production is important to the Brazilian economy, playing a role in the nutrition and livelihood of rural communities. Brazil is the third largest milk producer in the world, responsible for more than 34 billion liters per year, distributed in more than one million properties, most of which are small and medium-sized, and employs about 4 million people (IBGE, 2023).
With its importance, dairy production faces challenges related to price volatility, which directly affects the profitability and sustainability of production. According to the IBGE (2023), Brazilian milk production has remained stable over the years at 35.3 billion liters, reflecting the resilience and adaptability of producers in the face of market fluctuations.
Hence, the present study aims to analyze the risk-return associated with milk production based on the prices paid to the producers in different states of Brazil. For this, the potential loss that the producer may have in a given period due to price volatility will be estimated.

Material e métodos (obrigatório)

This work has a quantitative character, based on the analysis of secondary data on the price of milk in some states of Brazil. The data used were the monthly quotations of prices paid to the producer collected by the Center for Advanced Studies in Applied Economics (Cepea) in the period from 2012 to 2023 and corrected for inflation in the period measured by the Extended National Consumer Price Index (IPCA) with a base date of December 2023. Given the historical series of milk prices, the risk and return were calculated, comparing the results between the states of Brazil. The measurement of the risk of the assets was estimated through the value at risk (VaR). VaR is a probabilistic risk measure that takes into account the potential loss and is calculated according to Equation 1. VaR(X) = μ + Pσ   (1) Where X represents the previously established confidence level; μ is the average of the returns obtained in the period; P is the probability associated with the standard normal distribution; and σ is the volatility of the asset. The VAR method used was the model-building (variance-covariance model) assuming a standard normal distribution associated with N(0,1) and a confidence level of 95%. The return (r) was measured through the variation in the price of the assets and was calculated by Equation 2. r = (Actual Price - Previous Price)/Previous Price   (2) The use of the techniques for calculating the risk-return of assets (financial or not) present in this work is widespread and applied both in academia and business, in different areas of knowledge, study of Giot and Laurent (2003), Marimoutou et al. (2009), Degiannakis and Potamia (2017), applied this techniques for commodity analysis.

Resultados e discussão (obrigatório)

The financial risk in milk production can make the business unfeasible, compromising cash flow and the granting of rural credit to producers. Among the states analyzed, all had a similar risk, ranging from the lowest risk for São Paulo (0.32) to the highest risk for Goiás (0.40), as indicated in Table 1.   Table 1. VaR and return for milk prices   BA ES GO MG PR RJ RS SC SP VaR (95%) 0,31 0,36 0,40 0,37 0,37 0,34 0,37 0,36 0,32 Average return 0,11 0,12 0,12 0,12 0,13 0,11 0,12 0,12 0,12 Source: prepared by the authors   The risk estimate indicates the maximum loss that the price of milk can have in the same period, as the price quotation was monthly, the VaR indicates maximum monthly losses of about R$ 0.36 per liter in the month. Return estimates are approximately R$ 0.12 per month. In this sense, milk production in the states analyzed has a higher risk compared to the return obtained by price variation. It is worth mentioning that this analysis is based only on the price of milk and does not consider other production variables.  

Conclusão (obrigatório)

When analyzing the financial risk of milk production observing only the variation in the price to the producer, it is found that the financial risk linked to this activity is greater when compared to its return.

Referências bibliográficas (opcional)

DEGIANNAKIS, S.; POTAMIA, A. Multiple-days-ahead value-at-risk and expected shortfall forecasting for stock indices, commodities and exchange rates: Inter-day versus intra-day data. International Review of Financial Analysis, v. 49, p. 176-190, 2017.

IBGE – INSTITUTO BRASILEIRO DE GEOGRAFIA E ESTATÍSTICA. Pesquisa municipal agropecuária (PPM). 2023.

GIOT, P.; LAURENT, S. Market risk in commodity markets: a VaR approach. Energy Economics, v. 25, n. 5, p. 435-457, 2003.

MARIMOUTOU, V.; RAGGAD, B.; TRABELSI, A. Extreme value theory and value at risk: application to oil market. Energy Economics, v. 31, n. 4, p. 519-530, 2009.