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Hedging Feeder Steers And Heifers In The Cash-Settled Feeder Cattle Futures Market

Author

Listed:
  • Shroeder, Ted C.
  • Mintert, James R.

Abstract

Recent changes in the feeder cattle futures contract specifications are expected to reduce hedging risk and may result in changes in optimal hedging levels. This study provides an estimate of feeder cattle hedge ratios associated with the new cash-settled feeder cattle futures contract and compares the levels of hedging risk present under the cash settled contract with the physical delivery contract. Hedging risks are compared for several weights of feeder steers and heifers and are analyzed across four market locations. Results indicate that hedging risk is generally, though not always, lower with cash settlement than under the physical delivery contract specifications.

Suggested Citation

  • Shroeder, Ted C. & Mintert, James R., 1988. "Hedging Feeder Steers And Heifers In The Cash-Settled Feeder Cattle Futures Market," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 13(02), December.
  • Handle: RePEc:ags:wjagec:32119
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    File URL: http://purl.umn.edu/32119
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    References listed on IDEAS

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    1. Ashley, R & Granger, C W J & Schmalensee, R, 1980. "Advertising and Aggregate Consumption: An Analysis of Causality," Econometrica, Econometric Society, vol. 48(5), pages 1149-1167, July.
    2. 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. Lien, Donald & Tse, Yiu Kuen, 2006. "A survey on physical delivery versus cash settlement in futures contracts," International Review of Economics & Finance, Elsevier, vol. 15(1), pages 15-29.
    2. Rochelle, Thereza Christina Pippa & Filho, Joaquim Bento de Souza Ferreira, 2000. "Cash Settlement Impact on Fed Cattle Futures Contract Basis Risk in Brazil," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finan├žas, Getulio Vargas Foundation (Brazil), vol. 54(2), April.
    3. Schroeder, Ted C. & Yang, Xiaolou, 2001. "Hedging Wholesale Beef Cuts," 2001 Annual Meeting, July 8-11, 2001, Logan, Utah 36091, Western Agricultural Economics Association.
    4. Frank, Julieta & Gomez, Miguel I. & Kunda, Eugene L. & Garcia, Philip, 2008. "Cash Settlement of Lean Hog Futures Contracts Reexamined," 2008 Conference, April 21-22, 2008, St. Louis, Missouri 37611, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.

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    Keywords

    Livestock Production/Industries; Marketing;

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