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Futures spread risk in soybean multiyear hedge-to-arrive contracts

Author

Listed:
  • E. Neal Blue

    (Department of Agricultural, Environmental and Development Economics, Ohio State University)

  • Marvin L. Hayenga

    (Department of Economics, Iowa State University)

  • Sergio H. Lence

    (Department of Economics, Iowa State University)

  • E. Dean Baldwin

    (Department of Agricultural, Environmental and Development Economics, Ohio State University)

Abstract

Soybean futures spreads in the 1948-1997 period are evaluated for the associated monetary risks inherent in multiyear hedge-to-arrive contracts (HTAs). For all years, the probability of having a negative old crop-new crop spread is approximately 75%. However, the high-price years have a 100% probability of having a negative spread and a 50-60% probability of having a negative spread exceeding 10 percent. The spread risk in high price years makes a multiyear HTA an imprecise hedge. Thus, establishing new crop prices close to current futures prices by initially using old crop futures is unlikely. © 1998 John Wiley & Sons, Inc.

Suggested Citation

  • E. Neal Blue & Marvin L. Hayenga & Sergio H. Lence & E. Dean Baldwin, 1998. "Futures spread risk in soybean multiyear hedge-to-arrive contracts," Agribusiness, John Wiley & Sons, Ltd., vol. 14(6), pages 467-474.
    • Handle: RePEc:wly:agribz:v:14:y:1998:i:6:p:467-474
    DOI: 10.1002/(SICI)1520-6297(199811/12)14:6<467::AID-AGR4>3.0.CO;2-D
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    References listed on IDEAS

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    1. Bruce L. Gardner, 1989. "Rollover Hedging and Missing Long-Term Futures Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(2), pages 311-318.
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    Cited by:

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    2. Dwight R. Sanders & Mark R. Manfredo, 2002. "The white shrimp futures market: Lessons in contract design and marketing," Agribusiness, John Wiley & Sons, Ltd., vol. 18(4), pages 505-522.

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