Optimizing Risk and Return for Commodity Producers Using Modern Portfolio Theory

Matthew Elliott

No 404326, 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri from Agricultural and Applied Economics Association

Abstract: This paper demonstrates the application of Modern Portfolio Theory (MPT) to commodity risk management, contrasting it with traditional technical indicator-based hedging strategies. While MPT approaches have been extensively utilized in the investment management industry for decades to optimize institutional portfolios and mutual funds, these sophisticated methods have not been widely applied by practitioners for optimizing hedges to commodity production. Using actual market data from 2018-2025, we analyze the performance of four distinct strategies: physical position holding, maximum Sharpe ratio optimization, minimum variance optimization, and technical Bollinger Band breakout signals for optimal risk management in commodity production. Our empirical analysis of a representative agricultural producer portfolio ($1.1M in corn and soybeans) reveals that the minimum variance strategy delivers superior risk-adjusted returns with a Sharpe ratio of 0.519, compared to technical strategies averaging -0.094. The study provides quantitative evidence that MPT-based approaches can significantly enhance commodity producers' risk management while reducing portfolio volatility by up to 47%.

Keywords: Agribusiness (search for similar items in EconPapers)
Pages: 39
Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/404326/files/1 ... _Paper_Final_3_1.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea26:404326

DOI: 10.22004/ag.econ.404326

Access Statistics for this paper

More papers in 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri from Agricultural and Applied Economics Association Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().