IDEAS home Printed from https://ideas.repec.org/p/isu/genstf/199901010800001073.html
   My bibliography  Save this paper

The Failure of Multi-Year Hedge-to-Arrive Contracts

Author

Listed:
  • Lence, Sergio H
  • Hayenga, Marvin
  • Harl, Neil E.

Abstract

In the late 1980s, grain elevators in Ohio developed the hedge-to-arrive contract (HTA) to induce farmers to use their grain handling facilities and/or merchandising services. Farmers wanted to use HTAs to lock-in abnormally attractive price levels for more years of expected production. Supposedly, the multiple-year HTA would lock-in those attractive prices without farmer margin calls (money required by commodity brokers as security against default) if futures prices rose further. A National Grain and Feed Association survey in early 1996 found that 45 percent of responding elevators offered single or multi-year HTAs, accounting for 6 percent of their grain volume. Many multi-year HTAs proved to be an economic disaster in 1996 when corn prices skyrocketed to unprecedented levels. The false premise underlying the contract design which we discuss in this paper became exposed in dramatic fashion. How did this disaster happen? How might it be prevented in the future?

Suggested Citation

  • Lence, Sergio H & Hayenga, Marvin & Harl, Neil E., 1999. "The Failure of Multi-Year Hedge-to-Arrive Contracts," ISU General Staff Papers 199901010800001073, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:199901010800001073
    as

    Download full text from publisher

    File URL: https://dr.lib.iastate.edu/server/api/core/bitstreams/f1e4b50d-30d9-48df-82f0-fd7fdce338bb/content
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. Dawe, David, 2001. "How far down the path to free trade? The importance of rice price stabilization in developing Asia," Food Policy, Elsevier, vol. 26(2), pages 163-175, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:isu:genstf:199901010800001073. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Curtis Balmer (email available below). General contact details of provider: https://edirc.repec.org/data/deiasus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.