An Analysis of Anticipatory Short Hedging Using Predicted Harvest Basis

David E. Kenyon and Steven E. Kingsley

Journal of Agricultural and Applied Economics, 1973, vol. 5, issue 1, 199-203

Abstract: The use of the futures market as an aid in marketing farm commodities has been gaining in popularity among producers. Current hedging practices are largely based on average basis or basis movement over some historical time period. The difficulty with this approach is that the year to year variation in the calculated basis is large and using the mean value to predict basis in a given year does not give a highly accurate estimate. The objectives of this study were: (1) to determine if regression analysis could be used to accurately predict the harvest basis at planting time, and (2) to evaluate the performance of alternative hedging strategies using historical average basis estimates versus basis estimates based on regression analysis.

Date: 1973
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