HEDGING RISK FOR FEEDER CATTLE WITH A TRADITIONAL HEDGE COMPARED TO A RATIO HEDGE

This paper compares hedging risk for various weights of feeder cattle hedged with a traditional cross hedge and a ratio cross hedge. A traditional hedge calls for the purchase/sale of one pound of futures for each pound of cash feeder cattle. By contrast, a ratio hedge requires estimation of a hedge ratio to determine the number of pounds of futures needed to hedge one pound of cash feeder cattle. Hedge ratios were found to be larger than 1.0 for light-weight feeder cattle. By using the estimated hedge ratios, it was shown that hedging risk could be reduced 20-50 percent compared to that achieved by using a hedge ratio of 1.0.


Issue Date:
1990-12
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/30012
Published in:
Southern Journal of Agricultural Economics, Volume 22, Number 2
Page range:
209-216
Total Pages:
8




 Record created 2017-04-01, last modified 2017-11-21

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