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Inventory and Transformation Hedging Effectiveness in Corn Crushing

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  • Dahlgran, Roger A.
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    Abstract

    Recently developed ethanol futures contracts now allow direct-hedging by ethanol producers. This study examines the effectiveness of one-through eight-week hedges between 2005 and 2008. Our findings show (a) ethanol inventory hedging effectiveness is significant for two-week and longer hedges, and increases with the hedging horizon; (b) ethanol futures are significantly superior to gasoline futures for hedging ethanol price risk for two-week and longer hedges; (c) the corn crushing hedge, utilizing corn and ethanol futures, is effective and provides price risk management capabilities comparable to those provided by the soybean crush hedge.

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    File URL: http://purl.umn.edu/50081
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    Bibliographic Info

    Article provided by Western Agricultural Economics Association in its journal Journal of Agricultural and Resource Economics.

    Volume (Year): 34 (2009)
    Issue (Month): 1 (April)
    Pages:

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    Handle: RePEc:ags:jlaare:50081

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    Web page: http://waeaonline.org/
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    Related research

    Keywords: corn crushing; cross-hedging; ethanol futures; hedging; processing hedge; Agricultural Finance; Crop Production/Industries;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Shapouri, Hosein & Duffield, James A. & Graboski, Michael S., 1995. "Estimating the Net Energy Balance of Corn Ethanol," Agricultural Economics Reports 34005, United States Department of Agriculture, Economic Research Service.
    2. Sanders, Dwight R. & Manfredo, Mark R., 2004. "Comparing Hedging Effectiveness: An Application of the Encompassing Principle," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(01), April.
    3. Anderson, Ronald W & Danthine, Jean-Pierre, 1980. " Hedging and Joint Production: Theory and Illustrations," Journal of Finance, American Finance Association, vol. 35(2), pages 487-98, May.
    4. Dahlgran, Roger A., 2005. "Transaction Frequency and Hedging in Commodity Processing," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 30(03), December.
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    Cited by:
    1. Sari, Ramazan & Hammoudeh, Shawkat & Chang, Chia-Lin & McAleer, Michael, 2012. "Causality between market liquidity and depth for energy and grains," Energy Economics, Elsevier, vol. 34(5), pages 1683-1692.
    2. Mallory, Mindy L. & Irwin, Scott H. & Hayes, Dermot J., 2012. "How market efficiency and the theory of storage link corn and ethanol markets," Energy Economics, Elsevier, vol. 34(6), pages 2157-2166.
    3. Chang, Chia-Lin & Chen, Li-Hsueh & Hammoudeh, Shawkat & McAleer, Michael, 2012. "Asymmetric adjustments in the ethanol and grains markets," Energy Economics, Elsevier, vol. 34(6), pages 1990-2002.
    4. Shawkat Hammoudeh & Soodabeh Sarafrazi & Chia-Lin Chang & Michael McAleer, 2011. "The Dynamics of Energy-Grain Prices with Open Interest," KIER Working Papers 776, Kyoto University, Institute of Economic Research.
    5. Natanelov, Valeri & McKenzie, Andrew M. & Van Huylenbroeck, Guido, 2013. "Crude oil–corn–ethanol – nexus: A contextual approach," Energy Policy, Elsevier, vol. 63(C), pages 504-513.

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