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An Analysis of Delivery-Period Basis Determination for Live Cattle

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  • Vollink, William
  • Raikes, Ronald

Abstract

Because level and variability of the basis at the time a hedge is lifted affects level and variability of returns from hedging [1, 4], an understanding of the determination of basis values is important both to hedgers and to those with regulatory responsibilities. This analysis focuses on the determination of par-delivery-point basis values during the delivery period of a live-cattle futures contract; i.e., on determination of the difference between futures price and cash price for a lot of live cattle that meets all futures contract specifications (including place and time of delivery). Results of the analysis suggest that, during the delivery period, par-delivery-point basis values for live cattle frequently differ from zero by more than the transaction costs associated with arbitrage, and that fluctuations in basis values may be partly explained by trader expectations and by risk associated with returns to arbitrage.

Suggested Citation

  • Vollink, William & Raikes, Ronald, 1977. "An Analysis of Delivery-Period Basis Determination for Live Cattle," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 9(1), pages 179-184, July.
    • Handle: RePEc:cup:jagaec:v:9:y:1977:i:01:p:179-184_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. O'Bryan, Stephen L. & Bobst, Barry W. & Davis, Joe T., 1977. "Factors Affecting Efficiency Of Feeder Cattle Hedging In Kentucky," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 9(1), pages 1-5, July.

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