CASH FORWARD CONTRACTING VERSUS HEDGING OF FED CATTLE, AND THE IMPACT OF CASH CONTRACTING ON CASH PRICES

This research examines cash forward contracting of fed cattle. For an individual feeder, a cash contract eliminates basis risk (as compared to a futures hedge). However, the disadvantage is that the contract price is estimated to be lower than the futures hedge price by $.28 - $.59/ cwt for steers and $.86 - $1.64.cwt for heifers. From the industry perspective, contracting appears to have a negative impact on cash prices. An increase of 1,000 head in U.S. monthly contract cattle shipments is associated with a $.003—$.009/cwt decrease in the U.S. average cash price. The negative impact of cash contracting varies by state.


Subject(s):
Issue Date:
1992-07
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/30729
Published in:
Journal of Agricultural and Resource Economics, Volume 17, Number 1
Page range:
205-217
Total Pages:
13




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

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