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Integrated Cattle Feeding Hedging Strategies, 1972-1976

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  • Shafer, Carl E.
  • Griffin, Wade L.
  • Johnston, Larry D.

Abstract

Most major crop and livestock prices became considerably more variable after 1972, resulting in increased producer price risk. Uncertainty in cattle feeding was compounded in that both input (feeder cattle and feed) and product (fed cattle) prices became quite variable after 1972. This uncertainty, accompanied by considerable losses in cattle feeding during the 1973-1975 period, has made hedging a more desirable option [1, 9]. Several studies have examined a short hedge on live cattle at the beginning of the feeding period as a means of reducing risk and increasing returns to cattle feeders. Selective hedging strategies generally reduced the variance of returns per head as well as improved returns during periods when cash feeding was unprofitable [2, 5]. Routine hedging of every pen clearly reduced profits during periods when cattle prices were rising while providing some protection during cash-feeding loss periods [6]. Feeding live cattle on a cash basis was more profitable than routine hedging prior to 1973 [6].

Suggested Citation

  • 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(2), pages 35-42, December.
    • Handle: RePEc:cup:jagaec:v:10:y:1978:i:02:p:35-42_01
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    1. 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), pages 1-19.
    2. Power, Gabriel J. & Vedenov, Dmitry V., 2008. "The Shape of the Optimal Hedge Ratio: Modeling Joint Spot-Futures Prices using an Empirical Copula-GARCH Model," 2008 Conference, April 21-22, 2008, St. Louis, Missouri 37609, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    3. Dahlgran, Roger A., 2009. "The Relative Performance of In-Sample and Out-of-Sample Hedging Effectiveness Indicators," 2009 Conference, April 20-21, 2009, St. Louis, Missouri 53042, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    4. Purcell, Wayne D. & Riffe, Don A., 1980. "The Impact Of Selected Hedging Strategies On The Cash Flow Position Of Cattle Feeders," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 12(1), pages 1-9, July.
    5. Kenyon, David E. & Harrington, David H., 1983. "Hedging strategies and farm marketing and financial risks," Agricultural Outlook Forum Archive 1923 - 1997 326150, United States Department of Agriculture, Agricultural Outlook Forum.
    6. Shafer, Carl E., 1992. "Hedge Ratios and Basis Behavior: An Intuitive Insight?," Faculty Paper Series 257887, Texas A&M University, Department of Agricultural Economics.
    7. Patrick, George F., 1979. "Effects Of Debt Levels And Loan Arrangements On Farm Firm Survival And Growth," Risk Management in Agriculture: Behavioral, Managerial, and Policy Issues, January 25-26, 1979, San Francisco, California 271464, Regional Research Projects > W-149: An Economic Evaluation of Managing Market Risks in Agriculture.
    8. Ruan, Qingsong & Cui, Hao & Fan, Liming, 2020. "China’s soybean crush spread: Nonlinear analysis based on MF-DCCA," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 554(C).
    9. Dahlgran, Roger A., 2005. "Hedging Cash Flows from Commodity Processing," 2005 Conference, April 18-19, 2005, St. Louis, Missouri 19046, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.

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