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Cash Forward Contracting Versus Hedging Of Fed Cattle, And The Impact Of Cash Contracting On Cash Prices

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  • Elam, Emmett W.

Abstract

This research examines cash forward contracting of fed cattle. For an individual feeder, a cash contract eliminates basis risk (as compared to a futures hedge). However, the disadvantage is that the contract price is estimated to be lower than the futures hedge price by $.28 - $.59/ cwt for steers and $.86 - $1.64.cwt for heifers. From the industry perspective, contracting appears to have a negative impact on cash prices. An increase of 1,000 head in U.S. monthly contract cattle shipments is associated with a $.003-$.009/cwt decrease in the U.S. average cash price. The negative impact of cash contracting varies by state.

Suggested Citation

  • Elam, Emmett W., 1992. "Cash Forward Contracting Versus Hedging Of Fed Cattle, And The Impact Of Cash Contracting On Cash Prices," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(1), pages 1-13, July.
    • Handle: RePEc:ags:jlaare:30729
    DOI: 10.22004/ag.econ.30729
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    References listed on IDEAS

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    1. Trapp, James N. & Webb, Jeane K., 1986. "A Comparison Of Cattle Feeding Profit Variance Indicated By Private Versus Public Data," 1986 Annual Meeting, July 27-30, Reno, Nevada 278117, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Shah, Samarth & Brorsen, B. Wade & Anderson, Kim B., 2009. "Liquidity Costs in Futures Options Markets," 2009 Conference, April 20-21, 2009, St. Louis, Missouri 53047, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    3. Hayenga, Marvin L. & O'Brien, Daniel, 1990. "Competition for Fed Cattle in Colorado and Other Markets: The Impact of the Decline of Packers and the Ascent of Contracting," Staff General Research Papers Archive 11581, Iowa State University, Department of Economics.
    4. George, P.S. & King, Gordon A., 1971. "Consumer Demand for Food Commodities in the United States with Projections for 1980," Monographs, University of California, Davis, Giannini Foundation, number 11936, December.
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