Futures spread risk in soybean multiyear hedge-to-arrive contracts

E. Neal Blue, Marvin L. Hayenga, Sergio Horacio Lence and E. Dean Baldwin
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E. Neal Blue: Department of Agricultural, Environmental and Development Economics, Ohio State University, Postal: Department of Agricultural, Environmental and Development Economics, Ohio State University
Marvin L. Hayenga: Department of Economics, Iowa State University, Postal: Department of Economics, Iowa State University
E. Dean Baldwin: Department of Agricultural, Environmental and Development Economics, Ohio State University, Postal: Department of Agricultural, Environmental and Development Economics, Ohio State University

Agribusiness, 1998, vol. 14, issue 6, pages 467-474

Abstract: Soybean futures spreads in the 1948-1997 period are evaluated for the associated monetary risks inherent in multiyear hedge-to-arrive contracts (HTAs). For all years, the probability of having a negative old crop-new crop spread is approximately 75%. However, the high-price years have a 100% probability of having a negative spread and a 50-60% probability of having a negative spread exceeding 10 percent. The spread risk in high price years makes a multiyear HTA an imprecise hedge. Thus, establishing new crop prices close to current futures prices by initially using old crop futures is unlikely. © 1998 John Wiley & Sons, Inc.

Date: 1998
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Working Paper: Futures Spread Risk in Soybean Multi-Year Hedge-To-Arrive Contracts (1998)
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