Why hedging, as practiced for storable commodities, is not an option for dairy farmers: a critical discussion

Soren Prehn

No 340077, IAMO Discussion Papers from Institute of Agricultural Development in Transition Economies (IAMO)

Abstract: It is common practice in the literature to apply the same hedging practices (i.e., full hedging and minimum variance hedging) to storable and non-storable commodities. But is this approach also suitable for fluid milk? Dairy farmers have very different hedging objectives than grain farmers. The former want to lock in profitable forward prices for fluid milk, while the latter are looking for profitable storage margins for grain. In this paper, we will discuss not only why standard hedging practices are inappropriate when the goal is to lock in a forward price for fluid milk but also which hedging practice should be used instead.

Keywords: Agribusiness (search for similar items in EconPapers)
Pages: 9
Date: 2024-02
New Economics Papers: this item is included in nep-agr and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:ags:iamodp:340077

DOI: 10.22004/ag.econ.340077

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