CASH ETHANOL CROSS-HEDGING OPPORTUNITIES

Jason R.V. Franken and Joe Parcell ()

No 26035, Working Papers from University of Missouri Columbia, Department of Agricultural Economics

Abstract: Increased use of alternative fuels and low commodity prices have contributed to the recent expansion of the ethanol industry. As with any competitive industry, there exists some level of output price risk in the form of volatility. Yet, no actively traded ethanol futures market exists to transfer output price risk to. This study reports estimated minimum variance cross-hedge ratios between Michigan spot cash ethanol and the New York Mercantile Exchange (NYMEX) unleaded gasoline futures for 1-, 4-, 8-, 16-, and 24-week hedging periods. The research yields two results. First, the appropriate quantity of ethanol to hedge with one 42,000 NYMEX unleaded gasoline futures contract for each respective hedging period is realized. Second, the magnitude of the quantities of ethanol required to implement an effective minimum variance cross-hedge ratio is recognized as a possible deterrent to ethanol buyers and sellers from entering into a cross-hedge.

Keywords: Marketing; Resource/Energy Economics and Policy (search for similar items in EconPapers)
Pages: 17
Date: 2002
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/26035/files/aewp0209.pdf (application/pdf)

Related works:
Journal Article: Cash Ethanol Cross-Hedging Opportunities (2003)
Journal Article: Cash Ethanol Cross-Hedging Opportunities (2003)
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:umcowp:26035

DOI: 10.22004/ag.econ.26035

Access Statistics for this paper

More papers in Working Papers from University of Missouri Columbia, Department of Agricultural Economics Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().