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Is “Good Enough” Good Enough when Hedging Agricultural Commodities?

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  • Dahlgran, Roger A.

Abstract

This paper explores the returns to grain producers and processors of expending efforts to determine hedge ratios. We use cash and futures prices from Barchart.com and multi-location cash prices from the Daily Grain Review to determine if location-specific hedge ratios are superior to hedge ratios estimated for a central location then used for hedging at the specific location. We find that the price-risk management capabilities of single location hedge ratios computed the Barchart data perform well in hedging grains at other locations. This suggests that producers and processors should not invest heavily in determining precise hedge ratios that apply to a particular location. In other words, “good enough” hedge ratios are in fact good enough.

Suggested Citation

  • Dahlgran, Roger A., 2015. "Is “Good Enough” Good Enough when Hedging Agricultural Commodities?," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205090, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea15:205090
    DOI: 10.22004/ag.econ.205090
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    Keywords

    Agribusiness; Financial Economics; Marketing; Risk and Uncertainty;
    All these keywords.

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