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Hedging performance of shrimp futures contracts with multiple deliverable grades

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  • Josué Martínez‐Garmendia
  • James L. Anderson

Abstract

The performance of the black tiger and white shrimp futures contracts traded in the Minneapolis Grain Exchange (MGE) is considered. These two futures contracts have suffered low trader participation[fn100] since their inception despite the underlying multibillion‐dollar cash shrimp market. The article tries to find answers for such lack of interest in the context of the multiple deliverable category character of both contracts. In particular, the hedging effectiveness and the adequacy of the premiums/discounts are measured for the various shrimp size categories traded in each contract. The analyses indicate that the hedging effectiveness of both contracts is relatively modest. Part of the explanation for the performance of the contracts resides in high deliverable category exchange option values, which stem from volatility in the price differentials between size categories. The fixed premiums/discounts are not able to provide a remedy to the alternation in the cheapest to deliver category. There is also a liquidity problem that could result from the peculiarities of seafood trade. It is concluded that the lack of trader interest may be influenced by initial high deliverable category exchange option values. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 957–990, 1999

Suggested Citation

  • Josué Martínez‐Garmendia & James L. Anderson, 1999. "Hedging performance of shrimp futures contracts with multiple deliverable grades," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(8), pages 957-990, December.
    • Handle: RePEc:wly:jfutmk:v:19:y:1999:i:8:p:957-990
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    Cited by:

    1. Atle Oglend & Hans‐Martin Straume, 2020. "Futures market hedging efficiency in a new futures exchange: Effects of trade partner diversification," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(4), pages 617-631, April.
    2. Martinez-Garmendia, Josue & Anderson, James L., 2001. "Premiums/Discounts And Predictive Ability Of The Shrimp Futures Market," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 30(2), pages 1-8, October.
    3. Koziol, Philipp, 2014. "Inflation and interest rate derivatives for FX risk management: Implications for exporting firms under real wealth," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(4), pages 459-472.
    4. 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.
    5. Nygaard, Rune & Roll, Kristin H., 2024. "Cross-hedging wild salmon prices," Journal of Commodity Markets, Elsevier, vol. 33(C).
    6. Anderson, James L. & Asche, Frank & Garlock, Taryn, 2018. "Globalization and commoditization: The transformation of the seafood market," Journal of Commodity Markets, Elsevier, vol. 12(C), pages 2-8.
    7. Sanjay Mansabdar & Hussain C. Yaganti, 2023. "Optimizing Hedging Effectiveness of Indian Agricultural Commodity Futures: A Simulation Approach," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(1), pages 13-36, March.
    8. Wolff, François-Charles & Asche, Frank, 2022. "Pricing heterogeneity and transaction mode: Evidence from the French fish market," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 67-79.
    9. Reichardt, Susana, 2006. "On the future contract quality option: a new look," DEE - Working Papers. Business Economics. WB wb063711, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    10. Asche, Frank & Misund, Bård & Oglend, Atle, 2016. "Determinants of the Atlantic salmon futures risk premium," Journal of Commodity Markets, Elsevier, vol. 2(1), pages 6-17.
    11. Schütz, Peter & Westgaard, Sjur, 2018. "Optimal hedging strategies for salmon producers," Journal of Commodity Markets, Elsevier, vol. 12(C), pages 60-70.
    12. Asche, Frank & Misund, Bard & Oglend, Atle, 2015. "The Spot-Forward Relationship in the Atlantic Salmon Market," UiS Working Papers in Economics and Finance 2015/16, University of Stavanger.
    13. Asche, Frank & Misund, Bard & Oglend, Atle, 2015. "Production Risk and the Futures Price Risk Premium?," UiS Working Papers in Economics and Finance 2015/13, University of Stavanger.
    14. Dahl, Roy Endré & Jonsson, Erlendur, 2018. "Volatility spillover in seafood markets," Journal of Commodity Markets, Elsevier, vol. 12(C), pages 44-59.
    15. Sanders, Dwight R. & Manfredo, Mark R., 2004. "Comparing Hedging Effectiveness: An Application of the Encompassing Principle," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(1), pages 1-14, April.
    16. Manfredo, Mark R. & Sanders, Dwight R., 2003. "Minimum Variance Hedging And The Encompassing Principle: Assessing The Effectiveness Of Futures Hedges," 2003 Annual meeting, July 27-30, Montreal, Canada 22247, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    17. Manfredo Mark R & Sanders Dwight R, 2003. "Contract Design: A Note on Cash Settled Futures," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 1(1), pages 1-14, February.
    18. Sanders, Dwight R. & Manfredo, Mark R., 2002. "Modeling Contract Form: An Examination Of Cash Settled Futures," 2002 Conference, April 22-23, 2002, St. Louis, Missouri 19069, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.

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