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Rollover Hedging and Missing Long-Term Futures Markets

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  • Bruce L. Gardner

Abstract

Sequential rollover of annual futures positions provides farmers or others with a means of long-term hedging. Consequently, the absence of multiyear futures markets may not be a serious problem. However, year-to-year basis risk exists which can render rollovers ineffective in hedging. Evidence on soybean, corn, and cotton futures suggests that rollovers would be effective at locking in an initial price for a three- to six-year period but would be ineffective in routine hedging over a series of successive three- to six-year periods.

Suggested Citation

  • Bruce L. Gardner, 1989. "Rollover Hedging and Missing Long-Term Futures Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(2), pages 311-318.
    • Handle: RePEc:oup:ajagec:v:71:y:1989:i:2:p:311-318.
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    File URL: http://hdl.handle.net/10.2307/1241588
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    Citations

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    Cited by:

    1. Conley, Dennis M. & Almonte-Alvarez, Jaime, 1998. "Long-Term Hedging Analysis For Soybeans, 1973-95," 1998 Annual meeting, August 2-5, Salt Lake City, UT 21006, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Jules Sadefo Kamdem & Zoulkiflou Moumouni, 2020. "Comparison of Some Static Hedging Models of Agricultural Commodities Price Uncertainty," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(3), pages 631-655, September.
    3. E. Neal Blue & Marvin L. Hayenga & Sergio H. Lence & E. Dean Baldwin, 1998. "Futures spread risk in soybean multiyear hedge-to-arrive contracts," Agribusiness, John Wiley & Sons, Ltd., vol. 14(6), pages 467-474.
    4. Akiyama, Takamasa & Baffes, John & Larson, Donald F. & Varangis, Panos, 2003. "Commodity market reform in Africa: some recent experience," Economic Systems, Elsevier, vol. 27(1), pages 83-115, March.
    5. Kletzer, Kenneth M. & Newbery, David M. & Wright, Brian D., 1990. "Alternative instruments for smoothing the consumption of primary commodity exporters," Policy Research Working Paper Series 558, The World Bank.
    6. Lapan, Harvey & Moschini, Giancarlo, 1996. "Optimal price policy and the futures markets," Economics Letters, Elsevier, vol. 53(2), pages 175-182, November.
    7. Yoon, Byung-Sam & Brorsen, B. Wade, 2000. "Rollover Hedging," 2000 Conference, April 17-18 2000, Chicago, Illinois 18938, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    8. Zoulkiflou Moumouni & Jules Sadefo-Kamdem, 2019. "New models of commodity risk hedging according to the behavior of economic decision-makers or Rollover Strategies," Working Papers hal-02417459, HAL.
    9. Tomek, William G. & Peterson, Hikaru Hanawa, 2000. "Risk Management In Agricultural Markets: A Survey," 2000 Producer Marketing and Risk Management Conference, January 13-14, Orlando, FL 19580, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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