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Determining the Effectiveness of Exchange Traded Funds as a Risk Management Tool for Southeastern Producers

William Maples, Ardian Harri, John Michael Riley, Jesse Tack () and Brian Williams

No 229979, 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas from Southern Agricultural Economics Association

Abstract: This research investigates the use of commodity exchange traded funds (ETFs) as a price risk management tool for agriculture producers. The effectiveness of using ETFs to hedge price risk will bfffe determined by calculating optimal hedge ratios. This paper will investigate the southeastern producer’s ability to hedge their price risk for not only outputs, like corn and feeder cattle, but also for inputs, like diesel fuel and fertilizer. These ratios will be calculated using ordinary least squares (OLS), error correction model (ECM), and generalized autoregressive conditional heteroskedasticity (GARCH) regression models. Being able to use ETFs to hedge price risk would provide a significant tool to small and mid-sized producers who are unable to take advantage of current price risk management practices, such as the use of futures, because of the large size of the futures contracts. ETFs also present a potential tool to manage a producer’s input price risk. A majority of producers are unable to protect themselves from the rising costs of inputs due to producers’ small production size and unavailability of protection methods.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 26
Date: 2016
New Economics Papers: this item is included in nep-agr, nep-pr~ and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:ags:saea16:229979

DOI: 10.22004/ag.econ.229979

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