Managing Price Risk in Volatile Grain Markets, Issues and Potential Solutions

Andrew McKenzie and Eugene L. Kunda

Journal of Agricultural and Applied Economics, 2009, vol. 41, issue 2

Abstract: During 2008 extreme price volatility in grain markets led to country elevators incurring unprecedentedly large margin calls on their futures hedges. As a result elevators’ traditional liquidity sources and lines of credit were stretched to breaking point. This article explores the potential liquidity benefits of making available an Over-the-Counter Margin Credit Swap contract to grain hedgers. The swap would enable hedgers to draw upon sources of capital outside the farm credit system to provide liquidity needed to make margin calls. Simulation results clearly show that a Margin Credit Swap contract would provide significant liquidity benefits to hedgers during volatile periods.

Keywords: Agribusiness; Agricultural Finance; Crop Production/Industries; Risk and Uncertainty (search for similar items in EconPapers)
Date: 2009
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Journal Article: Managing Price Risk in Volatile Grain Markets, Issues and Potential Solutions (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:joaaec:53081

DOI: 10.22004/ag.econ.53081

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