Hedging grain price risk. Keep it simple! Econometric evidence from the grain markets, 1982–2024

Marie Steen, Sjur Westgaard and Ole Gjolberg

Journal of Commodity Markets, 2025, vol. 39, issue C

Abstract: This paper evaluates the effectiveness of seven hedging strategies for reducing price risk in the U.S. grain market. The strategies are ranging from a naïve “one-for-one” hedge to advanced econometric models such as Error Correction Models and GARCH, allowing for time-varying volatility. Using monthly data for corn, wheat, and soybeans 1982–2024 for conducting out-of-sample evaluations 1997–2024, we assess whether complex models provide meaningful advantages over simpler approaches. We find that while all strategies substantially reduce risk, simpler models perform comparably to more sophisticated ones in terms of standard deviation, Value-at-Risk, and Expected Shortfall. The results remain robust to different sub-samples and estimation windows.

Keywords: Grain prices; Price risk; Hedging; Optimal futures positions (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:39:y:2025:i:c:s2405851325000479

DOI: 10.1016/j.jcomm.2025.100503

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