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The Fair-Weather Hedge: Dependence Shifts and Hedging Failure in Feedlot Margins

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  • Lee, Siun

Abstract

Feedlot operators hedge a feeding margin that depends jointly on feeder cattle, corn, and live cattle prices, yet futures hedges lose effectiveness precisely when margins deteriorate. Using rolling Regular-Vine copulas on daily prices for the three commodities (2014–2025), this research studies the joint dependence among spot and futures markets and hedging effectiveness across profit and loss regimes. Variance based effectiveness is relatively stable, but downside effectiveness falls sharply as margins turn negative. This is driven not by the dependence structure but by the level of the margin. Because futures are approximately mean-neutral, they reshape the margin’s dispersion but cannot shift its location: when the expected margin sits below break-even, downside protection collapses even as variance reduction is preserved.

Suggested Citation

  • Lee, Siun, 2026. "The Fair-Weather Hedge: Dependence Shifts and Hedging Failure in Feedlot Margins," 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri 404351, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea26:404351
    DOI: 10.22004/ag.econ.404351
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    References listed on IDEAS

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    1. Robert J. Myers & Stanley R. Thompson, 1989. "Generalized Optimal Hedge Ratio Estimation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(4), pages 858-868.
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