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Analysis Of The Risk Management Properties Of Grazing Contracts Versus Futures And Option Contracts

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  • Harrison, R. Wes
  • Bobst, Barry W.
  • Benson, Fred J.
  • Meyer, Lee

Abstract

A stochastic budget simulator and generalized stochastic dominance are used to compare the risk management properties of grazing contracts to futures and option contracts. The results show that the risks of backgrounding feeder cattle are reduced significantly for pasture owners in a grazing contract. However, the risks of the cattle owner in a grazing contract are not significantly reduced. The results show that generally risk adverse pasture owners prefer grazing contracts to integrated production when traditional hedging is used to manage price risks. In addition, grazing contracts compare favorably with put option contracts for some pasture owners.

Suggested Citation

  • Harrison, R. Wes & Bobst, Barry W. & Benson, Fred J. & Meyer, Lee, 1996. "Analysis Of The Risk Management Properties Of Grazing Contracts Versus Futures And Option Contracts," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 28(2), pages 1-16, December.
    • Handle: RePEc:ags:joaaec:15117
    DOI: 10.22004/ag.econ.15117
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    2. Spreen, Thomas H. & Arnade, Carlos Anthony, 1984. "Use Of Forecasts In Decision-Making: The Case Of Stocker Cattle In Florida," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 16(01), pages 1-6, July.
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    Cited by:

    1. Anderson, John D. & Lacy, Curt & Forrest, Charlie S. & Little, Randall D., 2004. "Expected Utility Analysis of Stocker Cattle Ownership Versus Contract Grazing in the Southeast," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 36(3), pages 719-730, December.
    2. Ritchie, John W. & Abawi, G. Yahya & Dutta, Sunil C. & Harris, Trevor R. & Bange, Michael, 2004. "Risk management strategies using seasonal climate forecasting in irrigated cotton production: a tale of stochastic dominance," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(01), pages 1-29.
    3. Teegerstrom, Trent & D'Souza, Gerard E. & Osborne, Phillip & Jones, Kezelee Q., 1997. "To Contract Or Not To Contract? A Decision Theory And Portfolio Analysis Of Cattle Contract Grazing," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 26(2), pages 1-11, October.
    4. Tomek, William G. & Peterson, Hikaru Hanawa, 2000. "Risk Management in Agricultural Markets: A Survey," Staff Papers 121140, Cornell University, Department of Applied Economics and Management.
    5. Sabine Duvaleix-Treguer & Jean Cordier & Vincent Hovelaque & . American Agricultural Economics Association, 2003. "Contract design for improving membership commitment in French cooperatives," Post-Print hal-02342391, HAL.
    6. Evans, Jason R. & D'Souza, Gerard E. & Sperow, Mark & Rayburn, Edward B., 2004. "An Economic Analysis Of Pasture-Raised Beef Systems In Appalachia," 2004 Annual meeting, August 1-4, Denver, CO 20268, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. John W. Ritchie & G. Yahya Abawi & Sunil C. Dutta & Trevor R. Harris & Michael Bange, 2004. "Risk management strategies using seasonal climate forecasting in irrigated cotton production: a tale of stochastic dominance," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(1), pages 65-93, March.
    8. Harrison, R. Wes, 1998. "Stochastic Dominance Analysis Of Futures And Option Strategies For Hedging Feeder Cattle," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 27(2), pages 1-11, October.
    9. Peterson, Hikaru Hanawa & Tomek, William G., 2001. "Income Enhancing and Risk Management Properties of Marketing Practices," 2001 Conference, April 23-24, 2001, St. Louis, Missouri 18963, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    10. Maxwell, Brett J. & Wilson, William W. & Dahl, Bruce L., 2004. "Marketing Mechanisms In Gm Grains And Oilseeds," Agribusiness & Applied Economics Report 23639, North Dakota State University, Department of Agribusiness and Applied Economics.
    11. Todd H. Kuethe & Mitch Morehart, 2012. "The profit impacts of risk management tool adoption," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 72(1), pages 104-116, May.
    12. Peterson, Hikaru Hanawa & Tomek, William G., 2001. "Income-Enhancing And Risk-Reducing Properties Of Marketing Practices," 2001 Annual meeting, August 5-8, Chicago, IL 20613, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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