Hedging with Crop Yield Futures: A Mean-Variance Analysis

Tomislav Vukina, Dong-feng Li and Duncan M. Holthausen

American Journal of Agricultural Economics, 1996, vol. 78, issue 4, 1015-1025

Abstract: This investigation into the use of new Chicago Board of Trade yield futures to manage price and yield risks shows that a risk-minimizing firm can reduce its variance of profit by hedging in both markets compared to hedging in price futures only. The greater the variance of the contract underlying yield, the less effective the two-instrument hedge. Hedging effectiveness of the dual strategy also depends on the price and yield bases, and the effect of a change in either basis depends on whether the established crop yield futures position is short or long. Copyright 1996, Oxford University Press.

Date: 1996
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