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Feasibility of using futures contracts of the Chicago Mercantile Exchange for hedging price risk in Chilean cattle

Author

Listed:
  • Ricardo Troncoso-Sepúlveda

    (Universidad del Rosario)

  • Juan Cabas-Monje

    (Universidad del Bio-Bio)

Abstract

The aim of this paper is to study the feasibility of using Chicago Mercantile Exchange futures contracts as a price risk hedging instrument for cattle in Chile. For this purpose, seasonal unit root tests were performed, and the Johnson-Stein model was used to estimate the minimum risk hedge ratios between 1975 and 2012. The results show that the cattle markets are integrated and that the optimal hedge ratio for a livestock producer is in line with the estimated ratios for other commodities. These findings can be useful for agricultural policy makers in developing countries because they confirm the potential of this type of instrument to reduce the price risk for livestock producers and provide empirical arguments to encourage its use

Suggested Citation

  • Ricardo Troncoso-Sepúlveda & Juan Cabas-Monje, 2019. "Feasibility of using futures contracts of the Chicago Mercantile Exchange for hedging price risk in Chilean cattle," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 90, pages 9-44, Enero - J.
    • Handle: RePEc:lde:journl:y:2019:i:90:p:9-44
    DOI: 10.17533/udea.le.n90a01
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    References listed on IDEAS

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    More about this item

    Keywords

    futures pricing; international financial markets; criteria for decision-making under risk and uncertainty; agricultural policy;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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