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New generation grain contracts in corn and soybean commodity markets

Author

Listed:
  • Elliott, Lisa
  • Elliott, Matthew
  • Slaa, Chad Te
  • Wang, Zhiguang

Abstract

This research quantifies the risk reduction and price received when agricultural producers adopt new generation grain contracts (NGGCs) to hedge corn and soybean production. We explore the Accumulator, Average Price, Price Plus, Minimum Price, and Price Protection contracts and compare the performance measures of the average bushel price that would be received by the producer, the change in daily value of the portfolio and the Sharpe ratio. Specific to the Accumulator contract, we quantify the bushels accumulated during the contract period. We find that the Price Plus contracts performed best overall during the 2008–2017 period, obtaining the highest bushel price and the highest average Sharpe ratio for both corn and soybeans. Consequently, based on the average daily portfolio Sharpe ratio, the Price Plus contracts offered corn and soybean producers the best risk-adjusted return to hedge production during 2008–2017.

Suggested Citation

  • Elliott, Lisa & Elliott, Matthew & Slaa, Chad Te & Wang, Zhiguang, 2020. "New generation grain contracts in corn and soybean commodity markets," Journal of Commodity Markets, Elsevier, vol. 20(C).
    • Handle: RePEc:eee:jocoma:v:20:y:2020:i:c:s2405851319300789
    DOI: 10.1016/j.jcomm.2019.100113
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    References listed on IDEAS

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    1. Bjerksund, Petter & Stensland, Gunnar, 1993. "Closed-form approximation of American options," Scandinavian Journal of Management, Elsevier, vol. 9(Supplemen), pages 87-99.
    2. Burns, Christopher B. & MacDonald, James M., 2018. "America’s Diverse Family Farms, 2018 Edition," Economic Information Bulletin 281176, United States Department of Agriculture, Economic Research Service.
    3. Hagedorn, Lewis A. & Irwin, Scott H. & Martines-Filho, Joao Gomes & Good, Darrel L. & Sherrick, Bruce J. & Schnitkey, Gary D., 2003. "New Generation Grain Marketing Contracts," AgMAS Project Research Reports 14782, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
    4. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
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    Cited by:

    1. Dejan Živkov & Biljana Stankov & Nataša Papić-Blagojević & Jelena Damnjanović & Željko Račić, 2023. "How to reduce the extreme risk of losses in corn and soybean markets? Construction of a portfolio with European stock indices," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 69(3), pages 109-118.

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    More about this item

    Keywords

    Accumulator; Agricultural risk management; Corn; Marketing contracts; Sharpe ratio; Soybeans;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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