What is Rubber?
Consumers and producers of rubber are able to manage rubber price risk through purchasing and selling rubber futures. Producers are able to employ a short hedge to lock in a selling price for their product while businesses that require rubber are able to take a long position to secure a purchase price for the Rubber commodity they need.
Uses of Rubber
The main use for rubber produced is used in the manufacturing of tyres for vehicles and machinery. Other uses for rubber can include, but not limited to:
- Thongs/Flip Flops
- Rain Boots
Risks of Rubber
Like any futures contract, there is always the possibility that the underlying asset i.e. rubber will move in the opposite direction to which you hold your contract. For example: you have taken a long position (expecting the price of rubber to rise), if this were to happen and the rubber fell in price, your long position in rubber will decrease in value.
Cultivation risks associated with growing rubber trees such as low rain falls, insects, disease, temperature, wind and solar radiation. All these factors can affect the level of output a farm is able to produce hence affecting the price of the rubber.