Futures Spread Risk in Soybean Multi-Year Hedge-To-Arrive Contracts

E. N. Blue, Marvin L. Hayenga, Sergio Lence and E. Dean Baldwin

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: Soybean futures spreads in the 1948-1997 period are evaluated for the associated monetary risks inherent in multiyear hedge-to-arrive contracts (HTAs). For all years, the probability of having a negative old crop-new crop spread is approximately 75%. However, the high-price years have a 100% probability of having a negative spread and a 50-60% probability of having a negative spread exceeding 10 percent. The spread risk in high price years makes a multiyear HTA an imprecise hedge. Thus, establishing new crop prices close to current futures prices by initially using old crop futures is unlikely

Date: 1998-11-01
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Published in Agribusiness: An International Journal, November/December 1998, vol. 14 no. 6, pp. 467-474

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