Hedging hard red winter wheat: Kansas City versus Chicago

Brorsen, B. Wade; Buck, Darren W.; Koontz, Stephen R.

doi:10.1002/(sici)1096-9934(199806)18:4<449::aid-fut5>3.0.co;2-q

Cited by 26 publications

(10 citation statements)

References 9 publications

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“…Not surprisingly, a high correlation is observed between Illinois and Kansas, as these two areas produce winter wheat. It is interesting to note that the correlation estimate of 0.83 is quite close to similar estimates reported in studies of optimal wheat cross-hedging (e.g., Brorsen, Buck and Koontz, 1998). The correlation is also high between Illinois and South Dakota, even though Illinois produces winter wheat and South Dakota produces spring wheat.…”

Section: Wheat Class and Geographic Locationsupporting

confidence: 83%

Do Agricultural Market Advisory Services Beat the Market? Evidence from the Wheat Market Over 1995-1998

Jirik¹,

Irwin²,

Good³

et al. 2001

SSRN Journal

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Section: Wheat Class and Geographic Locationsupporting

confidence: 83%

Do Agricultural Market Advisory Services Beat the Market? Evidence from the Wheat Market Over 1995-1998

Jirik¹,

Irwin²,

Good³

et al. 2001

SSRN Journal

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“…MLE uses a higher-order autoregressive process to approximate the moving average process. Use of an autoregressive average process has the advantage of being easier to estimate, but can also capture autocorrelation from other sources than overlapping data (Brorsen, Buck, and Koontz, 1998).…”

Section: Methodsmentioning

confidence: 99%

Hedging effectiveness of fertilizer swaps

2019

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One potential tool fertilizer dealers and producers have to protect themselves against fertilizer price risk is the fertilizer swaps market. Swaps usually settle using a floating variable price that is determined by an index of cash prices. This paper calculates hedge ratios and hedging effectiveness of urea and DAP (diammonium phosphate) swaps that settle using The Fertilizer Index with various spot price locations from the United States and internationally. Results show that urea and DAP swaps that settle using The Fertilizer Index perform poorly as a hedging tool over short time periods. As the hedging horizon increases, the hedging effectiveness of swaps improves.

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“…The methodology applied to determine the time-varying hedge ratios is the mean-variance hedge ratio derived from Myers and Thompson (1989), similar to that derived by Brorsen et al (1998) and Leuthold et al (1989). The latter frameworks stem from the five assumptions considered by Benninga et al (1984) to show that the mean-variance hedge ratios developed by Johnson (1960) are likewise consistent with utility maximizing hedge ratios.…”

Section: Hedging Methodologymentioning

confidence: 99%

Determining the effectiveness of optimal time-varying hedge ratios for cattle feeders under multiproduct and single commodity settings

Tejeda

Feuz

2014

Agricultural Finance Review

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Purpose -The purpose of this paper is to determine and contrast the risk mitigating effectiveness from optimal multiproduct time-varying hedge ratios, applied to the margin of a cattle feedlot operation, over single commodity time-varying and naive hedge ratios. Design/methodology/approach -A parsimonious regime-switching dynamic correlations (RSDC) model is estimated in two-stages, where the dynamic correlations among prices of numerous commodities vary proportionally between two different regimes/levels. This property simplifies estimation methods for a large number of parameters involved. Findings -There is significant evidence that resulting simultaneous correlations among the prices (spot and futures) for each commodity attain different levels along the time-series. Second, for in and out-of-sample data there is a substantial reduction in the operation's margin variance provided from both multiproduct and single time-varying optimal hedge ratios over naive hedge ratios. Lastly, risk mitigation is attained at a lower cost given that average optimal multiproduct and single time-varying hedge ratios obtained for corn, feeder cattle and live cattle are significantly below the naive full hedge ratio.Research limitations/implications -The application studied is limited in that once a hedge position has been set at a particular period, it is not possible to modify or update at a subsequent period. Practical implications -Agricultural producers, specifically cattle feeders, may profit from a tool using improved techniques to determine hedge ratios by considering a larger amount of up-to-date information. Moreover, these agents may apply hedge ratios significantly lower than one and thus mitigate risk at lower costs. Originality/value -Feedlot operators will benefit from the potential implementation of this parsimonious RSDC model for their hedging operations, as it provides average optimal hedge ratios significantly lower than one and sizeable advantages in margin risk mitigation.

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Hedging hard red winter wheat: Kansas City versus Chicago

Cited by 26 publications

References 9 publications

Do Agricultural Market Advisory Services Beat the Market? Evidence from the Wheat Market Over 1995-1998

Do Agricultural Market Advisory Services Beat the Market? Evidence from the Wheat Market Over 1995-1998

Hedging effectiveness of fertilizer swaps

Determining the effectiveness of optimal time-varying hedge ratios for cattle feeders under multiproduct and single commodity settings

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