NDLI: Hedging Potential in Grain Storage and Livestock Feeding

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Hedging Potential in Grain Storage and Livestock Feeding

Content Provider	AgEcon Search
Author	Heifner, Richard G.
Abstract	The potential for shifting risk through hedging in commodity futures is analyzed for selected grain storage and livestock feeding situations. Results applying to various locations, grades, and/or classes are reported for wheat, corn, oats, cattle, and hogs. Hedging potential is measured in terms of risk-shifting effectiveness--the proportional reduction in the variance of profits that can be obtained through routine hedging. The study indicates that hedging provides an effective means of shifting risk in livestock feeding as well as in grain storage. For most of the situations studied, the level of hedging that minimizes overall profit risk ranges between 0.6 and 1.0 unit of futures per unit of cash commodity. About one-third to two-thirds of the price risk can be shifted through hedging at this level. Hedging effectiveness declines as the distance from the delivery point for the futures contract increases. Hedging effectiveness differs between classes of wheat and among the three wheat futures markets. Grade has little impact on hedging effectiveness in cattle feeding, however. Optimal hedging levels for individual firms are shown to be very sensitive to the firms’ price expectations.
Related Links	https://ageconsearch.umn.edu/record/307482/files/aer238.pdf
Page Count	46
File Format	PDF
DOI	10.22004/ag.econ.307482
Language	English
Publisher Date	1973-01-01
Access Restriction	Open
Subject Keyword	Applied Economics Agricultural Economics Agri-economic Open Access Database Research in Applied Economics Research in Agricultural Economics Higher Study On Agricultural Economics Higher Study On Applied Economics Agricultural Research Documents Agrarian Economy & Research Higher Study Agri-economics Research in Economics Agri-economic Open Access Repository Statistics in Agricultural Economics Futures Trading, Hedging, Grain Storage, Cattle Feeding, Hog Feeding, Price Analysis Futures Trading Hedging Grain Storage Cattle Feeding Hog Feeding Price Analysis Crop Production/industries Demand and Price Analysis Livestock Production/industries Risk and Uncertainty
Content Type	Text
Resource Type	Report
Subject	Economics, Econometrics and Finance

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