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Optimal Hedging Strategies For The U.S. Cattle Feeder

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  • Leuthold, Raymond M.
  • Noussinov, Mikhail A.

Abstract

Multiproduct optimal hedging for simulated cattle feeding is compared to alternative hedging strategies using weekly price data for 1983-95. Out-of-sample means and variances of hedged feeding margins using estimated hedge ratios for four commodities suggest that there is no consistent domination pattern among the alternative strategies, leaving the hedging decision up to the agent's degree of risk aversion. However, all hedging strategies significantly reduce the feeding margin's means and variances compared to no hedging, with variance reduction always exceeding 50%. Hedging results appear quite sensitive to the data set and its size.

Suggested Citation

  • Leuthold, Raymond M. & Noussinov, Mikhail A., 1999. "Optimal Hedging Strategies For The U.S. Cattle Feeder," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 17(1).
  • Handle: RePEc:ags:jloagb:14679
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    File URL: http://purl.umn.edu/14679
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    References listed on IDEAS

    as
    1. Anderson, Ronald W & Danthine, Jean-Pierre, 1980. " Hedging and Joint Production: Theory and Illustrations," Journal of Finance, American Finance Association, vol. 35(2), pages 487-498, May.
    2. Shafer, Carl E. & Griffin, Wade L. & Johnston, Larry D., 1978. "Integrated Cattle Feeding Hedging Strategies, 1972-1976," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 10(02), December.
    3. Shafer, Carl E. & Griffin, Wade L. & Johnston, Larry D., 1978. "Integrated Cattle Feeding Hedging Strategies, 1972-1976," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 10(02), pages 35-42, December.
    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.
    5. C. A. Carter & R. M. A. Loyns, 1985. "Hedging Feedlot Cattle: A Canadian Perspective," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(1), pages 32-39.
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    Cited by:

    1. Ardian Harri & John Michael Riley & John D. Anderson & Keith H. Coble, 2009. "Managing economic risk in value-based marketing of fed cattle," Agricultural Economics, International Association of Agricultural Economists, vol. 40(3), pages 295-306, May.

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