Is “Good Enough” Good Enough when Hedging Agricultural Commodities?

This paper explores the returns to grain producers and processors of expending efforts to determine hedge ratios. We use cash and futures prices from Barchart.com and multi-location cash prices from the Daily Grain Review to determine if location-specific hedge ratios are superior to hedge ratios estimated for a central location then used for hedging at the specific location. We find that the price-risk management capabilities of single location hedge ratios computed the Barchart data perform well in hedging grains at other locations. This suggests that producers and processors should not invest heavily in determining precise hedge ratios that apply to a particular location. In other words, “good enough” hedge ratios are in fact good enough.


Issue Date:
2015
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/205090
Total Pages:
26
JEL Codes:
Q13
Note:
First draft. Selected paper prepared for presentation at the 2015 Agricultural and Applied Economics Association and Western Agricultural Economics Association Annual Meeting San Francisco, CA , July 26-28, 2015.




 Record created 2017-04-01, last modified 2017-05-27

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