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Futures Spread Risk in Soybean Multi-Year Hedge-To-Arrive Contracts

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  • Blue, E. N.
  • Hayenga, Marvin L.
  • Lence, Sergio H.
  • Baldwin, E. Dean

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

Suggested Citation

  • Blue, E. N. & Hayenga, Marvin L. & Lence, Sergio H. & Baldwin, E. Dean, 1998. "Futures Spread Risk in Soybean Multi-Year Hedge-To-Arrive Contracts," Staff General Research Papers Archive 1328, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:1328
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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:

    1. Unterschultz, James R. & Gurung, Rajendra Kumar, 2002. "New Generation Co-Operatives (Ngc) As A Model For Value-Added Agricultural Processing In Alberta: Applications To Factors Affecting Choice Of Pricing And Payment Practices By Traditional Marketing And," Project Report Series 24045, University of Alberta, Department of Resource Economics and Environmental Sociology.
    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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