Advanced Search
MyIDEAS: Login to save this paper or follow this series

Optimal Hedging Strategies for the U.S. Cattle Feeder

Contents:

Author Info

  • Mikhail A. Noussinov

    (University of Illinois at Urbana- Champaign)

  • Raymond M. Leuthold

    (University of Illinois at Urbana- Champaign)

Registered author(s):

    Abstract

    Multiproduct optimal hedging is compared to alternative hedging strategies as applied to a Midwestern cattle feeder. One-period feeding margin hedge ratios are estimated using weekly cash and futures price data from a simulation of a custom feedlot for 1983-1995. Hedge ratios are estimated using the last 4 years, 6 years, or all prior data available at the moment of estimation; the ratios demonstrate less variability as the length of the underlying sample increases. Hypothesis of all hedge ratios being equal to each other, that leads to the proportional hedging model, is rejected. Means and variances of hedged feeding margins using the computed hedge ratios suggest that there is no consistent domination pattern among the alternative strategies. For the ratios computed based on all prior data available, all strategies are on the efficient frontier, leaving the hedging decision up to the agent's degree of risk aversion. All hedging strategies are shown to significantly reduce the feeding margin's means and variances compared to no hedging, with variance reduction always exceeding 50 percent. Whether a producer chooses multiproduct, single-commodity, or proportional hedge ratios is sensitive to the data set and its size.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://128.118.178.162/eps/fin/papers/9804/9804004.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by EconWPA in its series Finance with number 9804004.

    as in new window
    Length: 35 pages
    Date of creation: 17 Apr 1998
    Date of revision:
    Handle: RePEc:wpa:wuwpfi:9804004

    Note: Type of Document - pdf; prepared on PC; to print on HP Laser Jet; pages: 35; figures: included. Office for Futures and Options Research (OFOR) at the University of Illinois at Urbana-Champaign. Working Paper 98-02. For a complete list of OFOR working papers see
    Contact details of provider:
    Web page: http://128.118.178.162

    Related research

    Keywords: hedging strategies; cattle feeding; hedge ratios;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. J. Caldwell & J. Copeland & M. Hawkins, 1982. "Alternative Hedging Strategies for an Alberta Feedlot Operator," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 30(3), pages 257-272, November.
    2. Sawa, Takamitsu, 1978. "Information Criteria for Discriminating among Alternative Regression Models," Econometrica, Econometric Society, vol. 46(6), pages 1273-91, November.
    3. 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.
    4. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:9804004. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.