The Fair-Weather Hedge: Dependence Shifts and Hedging Failure in Feedlot Margins

Siun Lee

No 404351, 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri from Agricultural and Applied Economics Association

Abstract: Feedlot operators hedge a feeding margin that depends jointly on feeder cattle, corn, and live cattle prices, yet futures hedges lose effectiveness precisely when margins deteriorate. Using rolling Regular-Vine copulas on daily prices for the three commodities (2014–2025), this research studies the joint dependence among spot and futures markets and hedging effectiveness across profit and loss regimes. Variance based effectiveness is relatively stable, but downside effectiveness falls sharply as margins turn negative. This is driven not by the dependence structure but by the level of the margin. Because futures are approximately mean-neutral, they reshape the margin’s dispersion but cannot shift its location: when the expected margin sits below break-even, downside protection collapses even as variance reduction is preserved.

Keywords: Agricultural Finance; Farm Management (search for similar items in EconPapers)
Pages: 12
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea26:404351

DOI: 10.22004/ag.econ.404351

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