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Optimal Hedging Strategies For The U.S. Cattle Feeder

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  • Leuthold, Raymond M.
  • Noussinov, Mikhail A.
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    Abstract

    Multiproduct optimal hedging for simulated cattle feeding is compared to alternative hedging strategies using weekly price data for 1983-95. Out-of-sample means and variances of hedged feeding margins using estimated hedge ratios for four commodities suggest that there is no consistent domination pattern among the alternative strategies, leaving the hedging decision up to the agent's degree of risk aversion. However, all hedging strategies significantly reduce the feeding margin's means and variances compared to no hedging, with variance reduction always exceeding 50%. Hedging results appear quite sensitive to the data set and its size.

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    Bibliographic Info

    Article provided by Agricultural Economics Association of Georgia in its journal Journal of Agribusiness.

    Volume (Year): 17 (1999)
    Issue (Month): 1 ()
    Pages:

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    Handle: RePEc:ags:jloagb:14679

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    Postal: 301 Conner Hall, University of Georgia, Athens, GA 30602-7509
    Web page: http://www.agecon.uga.edu/~jab/
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    Related research

    Keywords: cattle feeding; hedge ratios; hedging strategies; multiproduct hedging; optimal hedging; Marketing;

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    1. Shafer, Carl E. & Griffin, Wade L. & Johnston, Larry D., 1978. "Integrated Cattle Feeding Hedging Strategies, 1972-1976," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 10(02), December.
    2. 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.
    3. Gorman, William D. & Schuneman, Thomas R. & Catlett, Lowell B. & Urquhart, N. Scott & Southward, G. Morris, 1982. "Empirical Evaluation Of Selected Hedging Strategies For Cattle Feeders," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 7(02), December.
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