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Did Producer Hedging Opportunities in the Live Hog Contract Decline?

Author

Listed:
  • Fabio C. Zanini

    (The University of Illinois, Urbana- Champaign)

  • Philip Garcia

    (The University of Illinois, Urbana- Champaign)

Abstract

The paper assesses the usefulness of selective hedging strategies when combined with forecast techniques in the live hog contract. The use of routine futures and options hedging is not attractive relative to a cash-only strategy. However, forecasting and hedging can contribute to price risk management improvement for risk-averse producers. Consistent with previous research, the results indicate that the live hog contract continues to offer producers attractive pricing opportunities. The findings suggests that the success of the new lean value carcass contract may depend on its ability to attract trading volume from outside the traditional production sector.

Suggested Citation

  • Fabio C. Zanini & Philip Garcia, 1997. "Did Producer Hedging Opportunities in the Live Hog Contract Decline?," Finance 9712005, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:9712005
    Note: Type of Document - pdf ; prepared on PC; to print on HP Laserjet; pages: 14; figures: included. Office for Futures and Options Research (OFOR) at the University of Illinois, Urbana-Champaign. Working Paper 97-05. For a complete list of OFOR working papers see
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    File URL: http://econwpa.repec.org/eps/fin/papers/9712/9712005.pdf
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    References listed on IDEAS

    as
    1. Karl D. Skold & Eric Grundmeier & Stanley R. Johnson, 1989. "CARD Livestock Model Documentation: Pork," Center for Agricultural and Rural Development (CARD) Publications 88-tr4, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    2. Brian D. Adam & Philip Garcia & Robert J. Hauser, 1993. "Robust live hog pricing strategies under uncertain prices and risk preferences," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 13(8), pages 849-864, December.
    3. Matthew T. Holt & Jon A. Brandt, 1985. "Combining price forecasting with hedging of hogs: An evaluation using alternative measures of risk," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 5(3), pages 297-309, September.
    4. Philip Garcia & Dwight R. Sanders, 1996. "Ex ante basis risk in the live hog futures contract: Has hedgers' risk increased?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 16(4), pages 421-440, June.
    5. V. James Rhodes, 1995. "The Industrialization of Hog Production," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 17(2), pages 107-118.
    6. Jon A. Brandt, 1985. "Forecasting and Hedging: An Illustration of Risk Reduction in the Hog Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(1), pages 24-31.
    7. Granger, C. W. J. & Newbold, Paul, 1986. "Forecasting Economic Time Series," Elsevier Monographs, Elsevier, edition 2, number 9780122951831 edited by Shell, Karl.
    8. Karl D. Skold & Eric Grundmeier & Stanley R. Johnson, 1989. "CARD Livestock Model Documentation: Pork," Food and Agricultural Policy Research Institute (FAPRI) Publications 88-tr4, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
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    Citations

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    Cited by:

    1. Minkyoung Kim & Philip Garcia & Raymond Leuthold, 2009. "Managing price risks using and local polynomial kernel forecasts," Applied Economics, Taylor & Francis Journals, vol. 41(23), pages 3015-3026.

    More about this item

    Keywords

    hedging; forecasting; risk management; live hog futures; lean hog futures;

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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