IDEAS home Printed from https://ideas.repec.org/a/ags/jlaare/267607.html
   My bibliography  Save this article

Impacts of Changes in Market Fundamentals and Price Momentum on Hedging Live Cattle

Author

Listed:
  • Coffey, Brian K.
  • Tonsor, Glynn T.
  • Schroeder, Ted C.

Abstract

Basis prediction errors for live cattle in the five major Mandatory Livestock Price Reporting areas are analyzed to determine how shifts in the live cattle market fundamentals and contemporaneous market conditions, including price momentum, impact ability to hedge. Results reveal that thinness of the negotiated cash market, weight of cattle marketed, and contemporaneous factors statistically impact basis prediction errors. Impacts vary across region. Volatility in cost of gain and delivery costs have greater effects on basis prediction error than do market trends.

Suggested Citation

  • Coffey, Brian K. & Tonsor, Glynn T. & Schroeder, Ted C., 2018. "Impacts of Changes in Market Fundamentals and Price Momentum on Hedging Live Cattle," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 43(1), January.
    • Handle: RePEc:ags:jlaare:267607
    DOI: 10.22004/ag.econ.267607
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/267607/files/JARE%2CJanuary2018%2C%232%2CCoffey%2C18-33.pdf
    Download Restriction: no
    File URL: https://ageconsearch.umn.edu/record/267607/files/JARE%2CJanuary2018%2C%232%2CCoffey%2C18-33.pdf?subformat=pdfa
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.267607?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Mindy L. Mallory & Wenjiao Zhao & Scott H. Irwin, 2015. "The Cost of Post‐Harvest Forward Contracting in Corn and Soybeans," Agribusiness, John Wiley & Sons, Ltd., vol. 31(1), pages 47-62, January.
    2. Hatchett, Robert B. & Brorsen, B. Wade & Anderson, Kim B., 2010. "Optimal Length of Moving Average to Forecast Futures Basis," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(1), pages 1-16.
    3. Chaves, Denis B. & Viswanathan, Vivek, 2016. "Momentum and mean-reversion in commodity spot and futures markets," Journal of Commodity Markets, Elsevier, vol. 3(1), pages 39-53.
    4. James E. Newsome & George H. K. Wang & M. E. Boyd & Marty J. Fuller, 2004. "Contract modifications and the basis behavior of live cattle futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 24(6), pages 557-590, June.
    5. Marsh, John M., 2001. "U.S. Feeder Cattle Prices: Effects Of Finance And Risk, Cow-Calf And Feedlot Technologies, And Mexican Feeder Imports," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(2), pages 1-15, December.
    6. Barberis, Nicholas & Shleifer, Andrei & Vishny, Robert, 1998. "A model of investor sentiment," Journal of Financial Economics, Elsevier, vol. 49(3), pages 307-343, September.
    7. Philip Garcia & Raymond M. Leuthold & Mohamed E. Sarhan, 1984. "Basis Risk: Measurement and Analysis of Basis Fluctuations for Selected Livestock Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 66(4), pages 499-504.
    8. Philip Garcia, 2004. "A selected review of agricultural commodity futures and options markets," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 31(3), pages 235-272, September.
    9. Naik, Gopal & Leuthold, Raymond M., 1988. "Cash And Futures Price Relationships For Nonstorable Commodities: An Empirical Analysis Using A General Theory," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 13(2), pages 1-12, December.
    10. Philip Garcia & Dwight R. Sanders, 1996. "Ex ante basis risk in the live hog futures contract: Has hedgers' risk increased?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 16(4), pages 421-440, June.
    11. Shi‐Miin Liu & B. Wade Brorsen & Charles M. Oellermann & Apul L. Farris, 1994. "Forecasting the nearby basis of live cattle," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 14(3), pages 259-273, May.
    12. Holbrook Working, 1948. "Theory of the Inverse Carrying Charge in Futures Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(1), pages 1-28.
    13. Tonsor, Glynn T. & Dhuyvetter, Kevin C. & Mintert, James R., 2004. "Improving Cattle Basis Forecasting," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(2), pages 1-14, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shi, Ruoding & Isengildina Massa, Olga, 2022. "Costs of Futures Hedging in Corn and Soybean Markets," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 47(2), May.
    2. Schroeder, Ted C. & Tonsor, Glynn T. & Coffey, Brian K., 2019. "Commodity futures with thinly traded cash markets: The case of live cattle," Journal of Commodity Markets, Elsevier, vol. 15(C), pages 1-1.
    3. Augusto Hauber Gameiro, 2022. "Factors Defining Prices of Finished Cattle in Mato Grosso Contrasted Within Brazil’s Pricing Structure," Journal of Agricultural Studies, Macrothink Institute, vol. 10(4), pages 218-235, December.
    4. Ted C. Schroeder & Brian K. Coffey & Glynn T. Tonsor, 2023. "Hedonic modeling to facilitate price reporting and fed cattle market transparency," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(3), pages 1716-1733, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zaremba, Adam & Bianchi, Robert J. & Mikutowski, Mateusz, 2021. "Long-run reversal in commodity returns: Insights from seven centuries of evidence," Journal of Banking & Finance, Elsevier, vol. 133(C).
    2. Pudenz, Christopher C. & Schulz, Lee L., 2021. "Packer Procurement, Structural Change, and Moving Average Basis Forecasts: Lessons from the Fed Dairy Cattle Industry," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 46(3), September.
    3. Sanders, Dwight R. & Manfredo, Mark R., 2006. "Forecasting Basis Levels in the Soybean Complex: A Comparison of Time Series Methods," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 38(3), pages 513-523, December.
    4. Scott H. Irwin & Dwight R. Sanders, 2011. "Index Funds, Financialization, and Commodity Futures Markets," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 33(1), pages 1-31.
    5. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, June.
    6. Onel, Gulcan & Karali, Berna, 2014. "Relative Performance of Semi-Parametric Nonlinear Models in Forecasting Basis," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169795, Agricultural and Applied Economics Association.
    7. An N. Q. Cao & Michel A. Robe, 2022. "Market uncertainty and sentiment around USDA announcements," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(2), pages 250-275, February.
    8. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    9. Parcell, Joseph L. & Schroeder, Ted C. & Dhuyvetter, Kevin C., 2000. "Factors Affecting Live Cattle Basis," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 32(3), pages 1-11, December.
    10. Zhepeng Hu & Mindy Mallory & Teresa Serra & Philip Garcia, 2020. "Measuring price discovery between nearby and deferred contracts in storable and nonstorable commodity futures markets," Agricultural Economics, International Association of Agricultural Economists, vol. 51(6), pages 825-840, November.
    11. Zaremba, Adam & Kizys, Renatas & Raza, Muhammad Wajid, 2020. "The long-run reversal in the long run: Insights from two centuries of international equity returns," Journal of Empirical Finance, Elsevier, vol. 55(C), pages 177-199.
    12. Daniel Hofmann & Karl Ludwig Keiber, 2021. "Seasonalities in the German stock market," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 35(2), pages 151-192, June.
    13. Bekkerman, Anton & Brester, Gary W. & Taylor, Mykel, 2016. "Forecasting a Moving Target: The Roles of Quality and Timing for Determining Northern U.S. Wheat Basis," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(1), pages 1-17, January.
    14. Franken, Jason R.V. & Garcia, Philip & Irwin, Scott H., 2006. "Do Interest Rates Explain Disaggregate Commodity Price Growth?," 2006 Annual meeting, July 23-26, Long Beach, CA 21319, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    15. Gric, Zuzana & Ehrenbergerova, Dominika & Hodula, Martin, 2022. "The power of sentiment: Irrational beliefs of households and consumer loan dynamics," Journal of Financial Stability, Elsevier, vol. 59(C).
    16. Harrison Hong & Terence Lim & Jeremy C. Stein, 2000. "Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies," Journal of Finance, American Finance Association, vol. 55(1), pages 265-295, February.
    17. Gu, Chen & Guo, Xu & Zhang, Chengping, 2022. "Analyst target price revisions and institutional herding," International Review of Financial Analysis, Elsevier, vol. 82(C).
    18. Yao, Wei & Alexiou, Constantinos, 2022. "Exploring the transmission mechanism of speculative and inventory arbitrage activity to commodity price volatility. Novel evidence for the US economy," International Review of Financial Analysis, Elsevier, vol. 80(C).
    19. Edmonds, Christopher T. & Edmonds, Jennifer E. & Fu, Richard & Jenkins, David S., 2018. "Price momentum and the premium for meeting or beating analysts' forecasts of earnings," Advances in accounting, Elsevier, vol. 42(C), pages 34-47.
    20. Benchimol, Jonathan & El-Shagi, Makram & Saadon, Yossi, 2022. "Do expert experience and characteristics affect inflation forecasts?," Journal of Economic Behavior & Organization, Elsevier, vol. 201(C), pages 205-226.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:jlaare:267607. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/waeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.