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Managing Price Risk In Cotton Production Using Strategic Rollover Hedging

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  • Turner, Steven C.
  • Heboyan, Vahe

Abstract

Research on rollover hedging for agricultural commodities has focused on the consequences of using existing contracts to substitute for missing long-term contracts. It appears that some grains are candidates for rollover hedging while livestock is not. Cotton was analyzed to evaluate the effectiveness of rollover hedging from 1982 to 1999. This paper demonstrates that strategic rollover hedging can be used as a substitute for missing long-term futures market and increase expected returns in cotton production. The estimated results reported average returns of 62.22, 65.36, 75.80, 79.09, and 69.14 cents per pound for cash sale, single-year hedge, 5, 2.5, and 1% three-year strategic rollover hedging strategies, respectively. Thus, it appears returns for three-year strategic rollover hedging were about 20% higher than under the other two strategies.

Suggested Citation

  • Turner, Steven C. & Heboyan, Vahe, 2001. "Managing Price Risk In Cotton Production Using Strategic Rollover Hedging," Faculty Series 16708, University of Georgia, Department of Agricultural and Applied Economics.
    • Handle: RePEc:ags:ugeocr:16708
    DOI: 10.22004/ag.econ.16708
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    References listed on IDEAS

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    1. David E. Kenyon & Charles V. Beckman, 1997. "Multiple‐year pricing strategies for corn and soybeans," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 17(8), pages 909-934, December.
    2. Bruce L. Gardner, 1989. "Rollover Hedging and Missing Long-Term Futures Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(2), pages 311-318.
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