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Cross-Hedging Distillers Dried Grains: Exploring Corn and Soybean Meal Futures Contracts

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  • Brinker, Adam J.
  • Parcell, Joseph L.
  • Dhuyvetter, Kevin C.

Abstract

Ethanol mandates and high fuel prices have led to an increase in the number of ethanol plants in the U.S. in recent years. In turn, this has led to an increase in the production of distillers dried grains (DDGs) as a co-product of ethanol production. DDG production in 2006 is estimated to be near 11 million tons. A sharp increase in ethanol production and thus DDGs is expected in 2007 with an increase with the number of ethanol plants. As with most competitive industries, there is some level of price risk in handling DDGs and no futures contract available for this co-product. Ethanol plants, as well as users of DDGs, may find cross-hedging DDGs with corn or soybean meal (SBM) futures as an effective means of managing risk. Traditionally, DDGs are hedged using only corn futures.

Suggested Citation

  • Brinker, Adam J. & Parcell, Joseph L. & Dhuyvetter, Kevin C., 2007. "Cross-Hedging Distillers Dried Grains: Exploring Corn and Soybean Meal Futures Contracts," 2007 Conference, April 16-17, 2007, Chicago, Illinois 37567, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  • Handle: RePEc:ags:nccsci:37567
    DOI: 10.22004/ag.econ.37567
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    File URL: http://ageconsearch.umn.edu/record/37567/files/confp11-07.pdf
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    References listed on IDEAS

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    1. Dorfman, Jeffrey H. & Foster, Kenneth A., 1991. "Estimating Productivity Changes With Flexible Coeficients," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 16(2), pages 1-11, December.
    2. Poray, Michael C. & Foster, Kenneth A. & Dorfman, Jeffrey H., 2000. "Measuring An Almost Ideal Demand System With Generalized Flexible Least Squares," 2000 Annual meeting, July 30-August 2, Tampa, FL 21796, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. B. Wade Brorsen & Darren W. Buck & Stephen R. Koontz, 1998. "Hedging hard red winter wheat: Kansas City versus Chicago," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 18(4), pages 449-466, June.
    4. Parcell, Joseph L. & Mintert, James R. & Plain, Ronald L., 2004. "An Empirical Investigation of Live-Hog Demand," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 36(3), pages 1-15, December.
    5. Franken, Jason R.V. & Parcell, Joseph L., 2003. "Cash Ethanol Cross-Hedging Opportunities," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 35(3), pages 1-8, December.
    6. Granger, C. W. J. & Newbold, Paul, 1986. "Forecasting Economic Time Series," Elsevier Monographs, Elsevier, edition 2, number 9780122951831 edited by Shell, Karl.
    7. Parcell, Joseph L., 2003. "An Empirical Analysis of the Demand for Wholesale Pork Primals: Seasonality and Structural Change," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(2), pages 1-14, August.
    8. Sanders, Dwight R. & Manfredo, Mark R., 2004. "Comparing Hedging Effectiveness: An Application of the Encompassing Principle," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(1), pages 1-14, April.
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    Cited by:

    1. Awudu, Iddrisu & Wilson, William & Dahl, Bruce, 2016. "Hedging strategy for ethanol processing with copula distributions," Energy Economics, Elsevier, vol. 57(C), pages 59-65.
    2. Hubbs, Todd & Kuethe, Todd H. & Baker, Timothy G., 2009. "Evaluating the Dynamic Nature of Market Risk," 2009 Conference, April 20-21, 2009, St. Louis, Missouri 53037, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    3. Van Winkle, Tyler W. & Schroeder, Ted C., 2008. "Spatial Price Discovery, Dynamics, and Leadership in Evolving Distiller’s Grain Markets," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 6933, Southern Agricultural Economics Association.

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