The Impact of Selected Hedging Strategies on the Cash Flow Position of Cattle Feeders

Wayne D. Purcell and Don A. Riffe

Journal of Agricultural and Applied Economics, 1980, vol. 12, issue 1, 85-93

Abstract: Price risk has been a major problem for cattle feeders during the 1970s. Since 1972, variability in cash cattle prices has increased dramatically as a result of volatility in the feed grain sector, the cyclical liquidation of cattle numbers which began in late 1973, and cyclical moves in hog prices. The increased levels of price risk have prompted increased interest in hedging.The literature on hedging strategies for cattle feeding operations continues to grow. Results of early studies show hedging has the capacity to reduce risk in cattle feeding as measured by the variance of per head profits (Heifner; Holland, Purcell and Hague). More recent studies have developed and tested strategies which have the potential both to reduce price risk and increase profits. Selective hedging is typically employed. A mathematical model to predict cash price, sell-buy signals based on some technical trading system, or some other approach is used to select when the cash position should be hedged.

Date: 1980
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