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Hedging Effectiveness of Fertilizer Swaps

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  • Maples, William E.
  • Brorsen, B. Wade

Abstract

One potential tool fertilizer dealers and producers have to protect themselves against fertilizer price risk is the fertilizer swaps market. Swaps usually settle using a floating variable price that is determined by an index of cash prices. This paper calculates hedge ratios and hedging effectiveness of urea and DAP (diammonium phosphate) swaps that settle using The Fertilizer Index with various spot price locations from the United States and internationally. Results show that urea and DAP swaps that settle using The Fertilizer Index perform poorly as a hedging tool over short time periods. As the hedging horizon increases, the hedging effectiveness of swaps improves.

Suggested Citation

  • Maples, William E. & Brorsen, B. Wade, 2017. "Hedging Effectiveness of Fertilizer Swaps," 2017 Conference, April 24-25, 2017, St. Louis, Missouri 285869, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:n13417:285869
    DOI: 10.22004/ag.econ.285869
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    2. Kanungo, Rama Prasad, 2021. "Uncertainty of M&As under asymmetric estimation," Journal of Business Research, Elsevier, vol. 122(C), pages 774-793.
    3. Long Hai Vo & Duc Hong Vo, 2020. "Modelling Australian Dollar Volatility at Multiple Horizons with High-Frequency Data," Risks, MDPI, vol. 8(3), pages 1-16, August.
    4. Zainudin, Ahmad Danial & Mohamad, Azhar, 2021. "Cross hedging with stock index futures," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 128-144.
    5. Marek Vochozka & Svatopluk Janek & Lenka Širáňová, 2023. "Geopolitical deadlock and phosphate shortfall behind the price hike? Evidence from Moroccan commodity markets," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 69(8), pages 301-308.

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