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Hedging Spot Corn: An Examination Of The Minneapolis Grain Exchange'S Cash Settled Corn Contract

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  • Sanders, Dwight R.
  • Greer, Tracy D.

Abstract

This research examines the potential basis behavior and hedging effectiveness for the Minneapolis Grain Exchange's (MGE) cash settled corn contract. MGE futures cash settle to the National Corn Index (NCI) calculated by Data Transmission Network (DTN). Focusing on seven regions in Illinois, the data suggest that NCI Futures offer potential advantages over the existing Chicago Board of Trade (CBOT) corn futures. In particular, nearby basis variability could be reduced by nearly one-half from 8.8 cents per bushel to 4.5 cents per bushel, and hedging effectiveness may increase from an average of 80% for the CBOT to 93% for the NCI.

Suggested Citation

  • Sanders, Dwight R. & Greer, Tracy D., 2002. "Hedging Spot Corn: An Examination Of The Minneapolis Grain Exchange'S Cash Settled Corn Contract," 2002 Conference, April 22-23, 2002, St. Louis, Missouri 19064, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:ncrtwo:19064
    DOI: 10.22004/ag.econ.19064
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    File URL: https://ageconsearch.umn.edu/record/19064/files/cp02sa01.pdf
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    References listed on IDEAS

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    1. Mark W. Ditsch & Raymond M. Leuthold, 1996. "Evaluating the Hedging Potential of the Lean Hog Futures Contract," Finance 9609003, University Library of Munich, Germany.
    2. Joost M. E. Pennings & Matthew T. G. Meulenberg, 1997. "The hedging performance in new agricultural futures markets: A note," Agribusiness, John Wiley & Sons, Ltd., vol. 13(3), pages 295-300.
    3. Elam, Emmett W., 1988. "Estimated Hedging Risk With Cash Settlement Feeder Cattle Futures," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 13(1), pages 1-8, July.
    4. Ditsch, Mark W. & Leuthold, Raymond M., 1996. "Evaluating The Hedging Potential Of The Lean Hog Futures Contract," ACE OFOR Reports 14769, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
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    Cited by:

    1. Quintino, Derick David & David, Sergio Adriani, 2013. "Quantitative analysis of feasibility of hydrous ethanol futures contracts in Brazil," Energy Economics, Elsevier, vol. 40(C), pages 927-935.

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    Keywords

    Crop Production/Industries; Marketing;

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