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Comparing Different Models to Cross Hedge Distillers Grains in Iowa: Is It Necessary to Include Energy Derivatives?

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  • Murguia, Juan M.
  • Lawrence, John D.

Abstract

The actual and expected increase of corn based ethanol production in the Midwest has increased the availability of Distillers Grains that are used in the feeding and egg industry as source of protein and energy. Since no future market has existed for this product, no previous studies have found significant results for Iowa and no geographical market integration has been found, the use of corn, soybean meal (SBM) and energy futures contracts is analyzed to hedge Distillers Grains prices in Iowa. Alternative models are estimated and evaluated. Results indicate that there are potential opportunities for cross hedging DDG (Distillers Dried Grain) in Iowa using corn, SBM and energy futures that effectively decrease price risk up to 86% for a 13 week hedge.

Suggested Citation

Handle: RePEc:ags:nccc10:285319
DOI: 10.22004/ag.econ.285319
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