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Cross-Hedging Distillers Dried Grains Using Corn and Soybean Meal Futures Contracts

Author

Listed:
  • Brinker, Adam J.
  • Parcell, Joseph L.
  • Dhuyvetter, Kevin C.
  • Franken, Jason R.V.

Abstract

Ethanol mandates have led to an increase in the production of distillers dried grains (DDGs), a co-product of ethanol production that is incorporated into livestock rations. As with most competitive industries, there is some level of price risk in handling DDGs, and there is no DDG futures contract available for managing price risk. Commonly, DDGs are hedged using only corn futures. Our results suggest that cross-hedge risk may be reduced by including soybean meal futures in an encompassing cross-hedge strategy. Further, we also conclude soybean meal futures currently may be slightly more effective at reducing risk than in the past.

Suggested Citation

  • Brinker, Adam J. & Parcell, Joseph L. & Dhuyvetter, Kevin C. & Franken, Jason R.V., 2009. "Cross-Hedging Distillers Dried Grains Using Corn and Soybean Meal Futures Contracts," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 27(01-2), pages 1-15.
    • Handle: RePEc:ags:jloagb:90654
    DOI: 10.22004/ag.econ.90654
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    References listed on IDEAS

    as
    1. Sanders, Dwight R. & Manfredo, Mark R., 2004. "Comparing Hedging Effectiveness: An Application of the Encompassing Principle," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(01), pages 1-14, April.
    2. Dorfman, Jeffrey H. & Foster, Kenneth A., 1991. "Estimating Productivity Changes With Flexible Coeficients," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 16(2), pages 1-11, December.
    3. Anderson, Ronald W & Danthine, Jean-Pierre, 1981. "Cross Hedging," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1182-1196, December.
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    Cited by:

    1. Białkowski, Jędrzej & Bohl, Martin T. & Perera, Devmali, 2023. "Commodity futures hedge ratios: A meta-analysis," Journal of Commodity Markets, Elsevier, vol. 30(C).
    2. Ismael Pérez-Franco & Esteban Otto Thomasz & Gonzalo Rondinone & Agustín García-García, 2022. "Feed price risk management for sheep production in Spain: a composite future cross-hedging strategy," Risk Management, Palgrave Macmillan, vol. 24(2), pages 137-163, June.
    3. David W. Bullock & William W. Wilson, 2026. "Managing risk in commodity processing using formula pricing contracts: An application to ethanol," Agribusiness, John Wiley & Sons, Ltd., vol. 42(1), pages 248-270, January.
    4. Franken, Jason R.V. & Irwin, Scott H. & Garcia, Philip, 2021. "Biodiesel hedging under binding renewable fuel standard mandates," Energy Economics, Elsevier, vol. 96(C).
    5. Johnson, Matthew & Yu, T. Edward & Griffith, Andrew P. & Jensen, Kimberly L. & Cho, Seong-Hoon, 2015. "Regional Dynamic Price Relationships between Distillers Dried Grains and Feed Grains," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196900, Southern Agricultural Economics Association.
    6. Jędrzej Białkowski & Martin T. Bohl & Devmali Perera, 2022. "Commodity Futures Hedge Ratios: A Meta-Analysis," Working Papers in Economics 22/12, University of Canterbury, Department of Economics and Finance.
    7. Jason R. V. Franken & Scott H. Irwin, 2024. "Revisiting biodiesel hedging," Agribusiness, John Wiley & Sons, Ltd., vol. 40(4), pages 1002-1015, October.
    8. Prehn, Sören, "undated". "Minimum Variance Hedging: Levels versus first Difference," 60th Annual Conference, Halle/ Saale, Germany, September 23-25, 2020 305608, German Association of Agricultural Economists (GEWISOLA).
    9. Bullock, David W. & Wilson, William W., 2019. "Managing Risk in Ethanol Processing Using Formula Pricing Contracts," 2019 Conference, April 15-16, 2019, Minneapolis, Minnesota 309622, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    10. Prehn, Sören, 2020. "Minimum Variance Hedging: Levels versus first Difference," 60th Annual Conference, Halle/ Saale, Germany, September 23-25, 2020 305608, German Association of Agricultural Economists (GEWISOLA).

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