The Development of Index Futures Contracts for Fresh Fruits and Vegetables

Mark R. Manfredo and James D. Libbin

No 285642, 1981-1999 Conference Archive from NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management

Abstract: The fruit and vegetable industry does not have a risk management instrument or a wellstructured price discovery system, such as commodity futures contracts, to aid in the marketing and management of its price risk. Since the 1980s, financial futures contracts based on indexes of stocks, commodities, and currencies have been used to hedge these groups of assets. The purpose of this study was to apply the concept of index futures contracts to the produce industry by developing an index or indexes based on prices of fruits and vegetables and to test their hedging capabilities. Twenty representative fruits and vegetables were chosen to compile indexes for fruits, for vegetables, and for fruits and vegetables together using a trade-weighted arithmetic average of 1989-92 wholesale prices of selected commodities traded on the Dallas Wholesale Fruit and Vegetable Market. The indexes were then tested by simulating a short and long hedge of a portfolio of commodities and by cross-hedging selected individual New Mexico and California produce commodities with the indexes.

Keywords: Marketing (search for similar items in EconPapers)
Date: 1995-04
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Persistent link: https://EconPapers.repec.org/RePEc:ags:nc8191:285642

DOI: 10.22004/ag.econ.285642

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