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The Impact of Selected Hedging Strategies on the Cash Flow Position of Cattle Feeders

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  • Purcell, Wayne D.
  • Riffe, Don A.

Abstract

Price risk has been a major problem for cattle feeders during the 1970s. Since 1972, variability in cash cattle prices has increased dramatically as a result of volatility in the feed grain sector, the cyclical liquidation of cattle numbers which began in late 1973, and cyclical moves in hog prices. The increased levels of price risk have prompted increased interest in hedging.The literature on hedging strategies for cattle feeding operations continues to grow. Results of early studies show hedging has the capacity to reduce risk in cattle feeding as measured by the variance of per head profits (Heifner; Holland, Purcell and Hague). More recent studies have developed and tested strategies which have the potential both to reduce price risk and increase profits. Selective hedging is typically employed. A mathematical model to predict cash price, sell-buy signals based on some technical trading system, or some other approach is used to select when the cash position should be hedged.

Suggested Citation

  • Purcell, Wayne D. & Riffe, Don A., 1980. "The Impact of Selected Hedging Strategies on the Cash Flow Position of Cattle Feeders," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 12(1), pages 85-93, July.
    • Handle: RePEc:cup:jagaec:v:12:y:1980:i:01:p:85-93_01
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    Cited by:

    1. Ziehm, William Walter, 1986. "An evaluation of alternative hedging strategies for Iowa cattle feeders: before, at, and after placement, 1974-1984," ISU General Staff Papers 1986010108000018118, Iowa State University, Department of Economics.
    2. Frank, Stuart D. & Pfeiffer, George H. & Curtis, Charles E. & Irwin, Scott H., 1986. "Analysis Of Soybean Options Harimting Strategies," 1986 Annual Meeting, July 27-30, Reno, Nevada 278501, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Gorman, William D. & Schuneman, Thomas R. & Catlett, Lowell B. & Urquhart, N. Scott & Southward, G. Morris, 1982. "Empirical Evaluation Of Selected Hedging Strategies For Cattle Feeders," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 7(2), pages 1-12, December.
    4. Pluhar, Darwin M. & Shafer, Carl E. & Sporleder, Thomas L., 1985. "Helmuth's Trading Technique: Further Evidence and Implications for Cattle Hedging Strategies 1975-1982," Staff Paper Series 257976, Texas A&M University, Department of Agricultural Economics.
    5. Dahlgran, Roger A., 2005. "Hedging Cash Flows from Commodity Processing," 2005 Conference, April 18-19, 2005, St. Louis, Missouri 19046, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.

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