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http://hdl.handle.net/2097/4943
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| Title: | Cross-hedging performance of wholesale beef in live cattle futures contracts revisited |
| Authors: | Bieroth, Casey W. |
| Publication Date: | 2010 |
| Graduation Month: | December |
| Type: | Thesis |
| Degree: | Master of Science |
| Department: | Department of Agricultural Economics |
| Major Professor: | Ted C. Schroeder |
| Keywords: | Cross-Hedging
Beef Price Risk
Bundling |
| Abstract: | Risk management decision makers face significant price risk when purchasing or selling wholesale beef. Previous research has identified cross-hedging wholesale beef in Live Cattle futures as a plausible means of reducing this risk.
Changes in the way beef is marketed have led to poor performance of cross-hedging programs. Unlike earlier research, more recent studies have shown that Live Cattle futures are a poor venue for effective cross-hedging. This study replicates previous research to evaluate the current state of traditional cross-hedging performance. Focus then shifts to improving cross-hedging methods.
Hedge ratios derived from a traditional cross-hedging methodology exhibit a great deal of sensitivity to season, estimation technique, and quality grade. Basis risk is abundant for this type of cross-hedging.
To reduce the basis risk inherent with cross-hedging wholesale beef, bundling is proposed. This involves combining two or more cuts together in a single unit to be cross-hedged. Firms merchandising meat from a whole carcass would be able to provide a valuable risk management service if the basis risk faced when hedging a bundled product is less than the basis risk faced when cross-hedging the corresponding products independently.
This research found that bundling has neither a positive or negative effect on basis risk. Therefore bundling is a plausible practice, but will not offer reduced basis risk to decision makers. |
| Appears in Collections: | K-State Electronic Theses, Dissertations, and Reports: 2004 -
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