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An analysis of live cattle option hedging strategies

Author

Listed:
  • Ted C. Schroeder

    (Department of Agricultural Economics, Kansas State University)

  • Orlen C. Grunewald

    (Department of Agricultural Economics, Kansas State University)

  • Scott A. Langemeier

    (Department of Agricultural Economics, Kansas State University)

  • Del M. Allen

    (Department of Animal Sciences and Industry, Kansas State University)

Abstract

Options on cattle futures have expanded the realm of alternative marketing strategies available to cattle feeders. This study utilized actual feedlot data to compare the return distributions from 31 separate fed cattle marketing strategies using cash, futures, put option, and call option markets. The results indicate that different strategies are preferred depending upon the risk preferences of the cattle feeder and the length of the feeding period. In general, over the 1980 through 1985 period, cash, hedging, and in-the-money put option purchases dominated spread and fence strategies for risk averse agents.

Suggested Citation

  • Ted C. Schroeder & Orlen C. Grunewald & Scott A. Langemeier & Del M. Allen, 1989. "An analysis of live cattle option hedging strategies," Agribusiness, John Wiley & Sons, Ltd., vol. 5(2), pages 153-168.
    • Handle: RePEc:wly:agribz:v:5:y:1989:i:2:p:153-168
    DOI: 10.1002/1520-6297(198903)5:2<153::AID-AGR2720050207>3.0.CO;2-Q
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    References listed on IDEAS

    as
    1. Spahr, Ronald W. & Sawaya, William J., 1981. "A Prehedging Strategy For The Feedlot Operation," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 6(1), pages 1-12, July.
    2. 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(2), pages 1-12, December.
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    Cited by:

    1. Tonsor, Glynn T. & Dhuyvetter, Kevin C. & Mintert, James R., 2004. "Improving Cattle Basis Forecasting," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(2), pages 1-14, August.
    2. Bullock, David William, 1989. "Options and market information: a mean-variance portfolio approach," ISU General Staff Papers 1989010108000010107, Iowa State University, Department of Economics.

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