Hostname: page-component-cd9895bd7-gxg78 Total loading time: 0 Render date: 2024-12-28T14:09:18.310Z Has data issue: false hasContentIssue false
  • English
  • Français

Hedging Effectiveness Around U.S. Department of Agriculture Crop Reports

Published online by Cambridge University Press:  26 January 2015

Andrew McKenzie  and
Navinderpal Singh
Andrew McKenzie
Affiliation:
Department of Agricultural Economics and Agribusiness, University of Arkansas, Fayetteville, AR
Navinderpal Singh
Affiliation:
Department of Agricultural Economics and Agribusiness, University of Arkansas, Fayetteville, AR
Get access Rights & Permissions [Opens in a new window]

Abstract

It is well documented that “unanticipated” information contained in United States Department of Agriculture (USDA) crop reports induces large price reactions in corn and soybean markets. Thus, a natural question that arises from this literature is: To what extent are futures hedges able to remove or reduce increased price risk around report release dates? This paper addresses this question by simulating daily futures returns, daily cash returns, and daily hedged returns around report release dates for two storable commodities (corn and soybeans) in two market settings (North Central Illinois and Memphis, Tennessee). Various risk measures, including “Value at Risk,” are used to determine hedging effectiveness, and “Analysis of Variance” is used to uncover the underlying factors that contribute to hedging effectiveness.

Keywords

analysis of variancestorage hedgingUnited States Department of Agriculture Crop Reportsvalue at riskQ13D81
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 43 , Issue 1 , February 2011 , pp. 77 - 94
Copyright
Copyright © Southern Agricultural Economics Association 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Fackler, P.L., and McNew, K.P. “Multiproduct Hedging: Theory, Estimation, and Application.” Review of Agricultural Economics 15(1993):521–35.10.2307/1349486Google Scholar
Fortenbery, R.T., and Zapata, H.O. “An Examination of Cointegration Relations between Futures and Local Grain Markets.” Journal of Futures Markets 13,8(1993):921–32.10.1002/fut.3990130809Google Scholar
Good, D.L., and Irwin, S.H. “Understanding USDA Corn and Soybean Production Forecasts: An Overview of Methods, Performance and Market Impact over 1970-2005.” AgMAS Project Research Report 2006-01. University of Illinois Urbana-Champaign, Department of Agr and Con Econ. 2006.Google Scholar
Isengeldina-Massa, O., Irwin, S.H., Good, D.L., and Gomez, J.K. “The Impact of Situation and Outlook Information in Corn and Soybean Futures Markets: Evidence from WASDE Reports.” Journal of Agricultural and Applied Economics 40,1(2008):89–103. Jorion, P. Value at Risk. New York: McGraw-Hill, 1997.Google Scholar
McKenzie, A.M. “Pre-Harvest Price Expectations for Corn: The Information Content of USDA Reports and New Crop Futures.” American Journal of Agricultural Economics 90,2(2008):351–66.10.1111/j.1467-8276.2007.01117.xGoogle Scholar
McKenzie, A.M. “The Effects of Barge Shocks on Soybean Basis Levels in Arkansas: A Study of Market Integration.” Agribusiness: An International Journal 2,1(2005):37–52.Google Scholar
Milonas, N. “The Effects of USDA Crop Announcements on Commodity Prices.” Journal of Futures Markets 7(1987):571–89.10.1002/fut.3990070509Google Scholar
Nocera, J. “Risk Management.” The New York Times Magazine January 4th edition (2009):24–51.Google Scholar