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Cross-Hedging Cottonseed Meal

Listed author(s):
  • Rahman, Shaikh Mahfuzur
  • Turner, Steven C.
  • Costa, Ecio de Farias

This study examines the feasibility of cross-hedging cottonseed meal with soybean meal futures. The Bayesian tests for market efficiency on the cash and futures price data soundly rejects the presence of nonstationary root. The simple linear regression of cottonseed meal cash prices on soybean meal futures provides a direct price movement relationship. Using the estimated hedge-ratios, the net realized prices are calculated for seven different cash markets. The net realized prices exhibit risk efficiency superior to cash pricing. The empirical analyses suggest that soybean meal futures can be used as a potential cross-hedging vehicle for cottonseed meal.

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Paper provided by University of Georgia, Department of Agricultural and Applied Economics in its series Faculty Series with number 16707.

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Date of creation: 2000
Handle: RePEc:ags:ugeofs:16707
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  1. Heifner, Richard G., 1972. "Optimal Hedging Levels and Hedging Effectiveness in Cattle Feeding," Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, issue 2.
  2. Castelino, Mark G & Francis, Jack C & Wolf, Avner, 1991. "Cross-Hedging: Basis Risk and Choice of the Optimal Hedging Vehicle," The Financial Review, Eastern Finance Association, vol. 26(2), pages 179-210, May.
  3. DeJong, David N., 1992. "Co-integration and trend-stationarity in macroeconomic time series : Evidence from the likelihood function," Journal of Econometrics, Elsevier, vol. 52(3), pages 347-370, June.
  4. Hayenga, Marvin L. & Jiang, Bingrong & Lence, Sergio H., 1996. "Improving Wholesale Beef and Pork Product Cross Hedging," Staff General Research Papers Archive 5004, Iowa State University, Department of Economics.
  5. Roger A. Dahlgran, 2000. "Cross-hedging the cottonseed crush: A case study," Agribusiness, John Wiley & Sons, Ltd., vol. 16(2), pages 141-158.
  6. Anderson, Ronald W & Danthine, Jean-Pierre, 1981. "Cross Hedging," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1182-1196, December.
  7. Tomislav Vukina & James L. Anderson, 1993. "A State-Space Forecasting Approach to Optimal Intertemporal Cross-Hedging," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(2), pages 416-424.
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