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Cross Hedging Hay Using Corn Futures: An Empirical Test

Author

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  • Blake, Martin L.
  • Catlett, Lowell B.

Abstract

This study examines the use of corn futures contracts to cross hedge both U.S. hay and New Mexico alfalfa hay. Correlations between monthly spot U.S. hay prices and corn futures prices ranged from .828 to .970 and were all significant at the alpha= .001 level. Multiple regression was used to determine the optimal corn futures contract month to cross hedge each spot monthly hay price. Regressions were used to determine the coverage ratio of tons of hay per corn futures contracts. A routine cross hedge was simulated and showed that cross hedging hay using corn futures increases gross returns per ton of hay.

Suggested Citation

  • Blake, Martin L. & Catlett, Lowell B., 1984. "Cross Hedging Hay Using Corn Futures: An Empirical Test," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 9(1), pages 1-8, July.
    • Handle: RePEc:ags:wjagec:32366
    DOI: 10.22004/ag.econ.32366
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    References listed on IDEAS

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    1. Hayenga, Marvin L. & DiPietre, Dennis D., 1981. "Hedging Pork Products Using Live Hog Futures: A Feasibility Analysis," 1981 Annual Meeting, July 26-29, Clemson, South Carolina 279413, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    Cited by:

    1. Brake, William & Anderson, John D. & Coffey, Brian K., 2006. "Geographic and Seasonal Differences in the Feeder Cattle Hedging Risk," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35325, Southern Agricultural Economics Association.
    2. Coffey, Brian K. & Anderson, John D. & Parcell, Joseph L., 2002. "Spatial Analysis Of Feeder Cattle Hedging Risk," 2002 Annual Meeting, July 28-31, 2002, Long Beach, California 36586, Western Agricultural Economics Association.
    3. Zhao, Jieyuan & Goodwin, Barry K., 2012. "Dynamic Cross-Hedge Ratios: An Application of Copula Models," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124610, Agricultural and Applied Economics Association.
    4. Zacharias, Thomas P. & Lange, Mark D. & Gleason, William J. & Traylor, Harlon D., 1987. "A Producer-Level Cross-Hedge For Rough Rice Using Wheat Futures," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 19(2), pages 1-8, December.
    5. Zura Kakushadze & Juan Andrés Serur, 2018. "151 Trading Strategies," Springer Books, Springer, number 978-3-030-02792-6, June.
    6. Regmund, Wes & Robinson, John & Anderson, David, "undated". "Higher and More Stable Returns From Cottonseed," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252813, Southern Agricultural Economics Association.
    7. Coffey, Brian K. & Anderson, John D. & Parcell, Joseph L., 2000. "Optimal Hedging Ratios And Hedging Risk For Grain By-Products," 2000 Annual meeting, July 30-August 2, Tampa, FL 21804, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Diersen, Matthew A., 2008. "Hay Price Forecasts at the State Level," 2008 Conference, April 21-22, 2008, St. Louis, Missouri 37600, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.

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