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Managing Livestock Feed Cost Risks Using Futures and Options

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  • Chen, Gang
  • Roberts, Matthew C.
  • Roe, Brian E.

Abstract

The costs of corn- and soybean-based feeds compose a substantial proportion of the variable costs faced by both mainstream and emergent confined livestock producers. This research develops a method to provide a joint distribution of prices of corn and soybean meal at a future time. Black's 1976 option model and stochastic volatility jump diffusion (SVJD) model are compared in volatility forecasting performance. In general, SVJD is superior to Black's model, though their performance is both commodity-specific and forecasting horizon specific. The price forecast can assist livestock producers to assess different feed procurement strategies in terms of the distribution of costs projected for each strategy.

Suggested Citation

  • Chen, Gang & Roberts, Matthew C. & Roe, Brian E., 2005. "Managing Livestock Feed Cost Risks Using Futures and Options," 2005 Annual meeting, July 24-27, Providence, RI 19399, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea05:19399
    DOI: 10.22004/ag.econ.19399
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    References listed on IDEAS

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