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The hedging pressure hypothesis and the risk premium in the soybean reverse crush spread

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  • Ziran Li
  • Dermot J. Hayes

Abstract

This article formalizes Keynes's hypothesis that the need to attract speculative capital to match hedgers' trades will create a difference between the futures and expected maturity price. We expand this analysis to the soybean complex where we have speculators and hedgers in soybeans, soybean meal, and soybean oil. We focus on the crush spread because it is unlikely that hedgers will want to make simultaneous trades on the opposite side of soybean crushers in all three markets. We find strong evidence of a positive return to speculators who provide this liquidity.

Suggested Citation

  • Ziran Li & Dermot J. Hayes, 2022. "The hedging pressure hypothesis and the risk premium in the soybean reverse crush spread," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(3), pages 428-445, March.
    • Handle: RePEc:wly:jfutmk:v:42:y:2022:i:3:p:428-445
    DOI: 10.1002/fut.22285
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    Cited by:

    1. Shirui Wang & Tianyang Zhang, 2024. "Predictability of commodity futures returns with machine learning models," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(2), pages 302-322, February.
    2. Zhou, Xinquan & Bagnarosa, Guillaume & Gohin, Alexandre & Pennings, Joost M.E. & Debie, Philippe, 2023. "Microstructure and high-frequency price discovery in the soybean complex," Journal of Commodity Markets, Elsevier, vol. 30(C).

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