Analysis of Hedging Price Policy to Financial Performance for Crude Palm Oil (CPO) Producers in Indonesia

Wenny Putri Permata, Hermanto Siregar, Tubagus Nur Ahmad Maulana

Abstract: This research analyses the impacts of the implementation hedging price policy on the financial performance of Indonesian CPO producers. Prices of CPO have high volatility characteristic following the market mechanism, despite the fact that Indonesia is the largest CPO producer in the world. This is because of the domestic CPO selling price still refers to the International commodity market price. The volatility of CPO price has created exposures to the price risk for CPO producers in Indonesia and to mitigate this risk, companies used derivative instrument to encounter possible loss. Our research found there are only few CPO companies (three firms) whose implemented hedging price policy. We analysed the financial performance of these three sample firms and evaluated their hedging decision using logistic regression. The results of this analysis showed that in general firms who implemented hedging policies had better financial performance than those who did not hedge.

Keywords: crude palm oil, financial ratio analysis, financial performance, hedging price, price risk