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Optimal Hedging Levels and Hedging Effectiveness in Cattle Feeding

  • Heifner, Richard G.
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    Optimal hedging level, minimum-risk hedging level, and hedging effectiveness are defined in a manner consistent with portfolio theory and used to analyze hedging potential in cattle feeding. Estimated upper limits on optimal hedging levels ranged from 0.56 to 0.88 unit of short futures per unit of four types of slaughter cattle produced at five locations. When futures trading costs are taken into account, optimal hedging levels are depressed below these limits, depending upon the resource availabilities and profit expectations of individual firms. Location, grade, and sex of the cattle fed have small effects on optimal hedging levels and hedging effectiveness.

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    Article provided by United States Department of Agriculture, Economic Research Service in its journal Agricultural Economics Research.

    Volume (Year): (1972)
    Issue (Month): 2 ()

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    Handle: RePEc:ags:ueraer:147014
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    1. Paul, Allen B. & Wesson, William T., 1967. "Pricing Feedlot Services Through Cattle Futures," Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, issue 2.
    2. Howell, L. D., 1962. "Analysis of Hedging and Other Operations in Wool and Wool Top Futures," Technical Bulletins 170885, United States Department of Agriculture, Economic Research Service.
    3. Ronald I. McKinnon, 1967. "Futures Markets, Buffer Stocks, and Income Stability for Primary Producers," Journal of Political Economy, University of Chicago Press, vol. 75, pages 844.
    4. Gum, Russell L. & Wildermuth, John, 1970. "Hedging on the Live Cattle Futures Contract," Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, issue 4.
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