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Integrated Cattle Feeding Hedging Strategies, 1972-1976

Published online by Cambridge University Press:  28 April 2015

Carl E. Shafer ,
Wade L. Griffin  and
Larry D. Johnston
Carl E. Shafer
Affiliation:
Department of Agricultural Economics, Texas A&M University, College Station
Wade L. Griffin
Affiliation:
Department of Agricultural Economics, Texas A&M University, College Station
Larry D. Johnston
Affiliation:
Department of Agricultural Economics, Texas A&M University, College Station
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Extract

Most major crop and livestock prices became considerably more variable after 1972, resulting in increased producer price risk. Uncertainty in cattle feeding was compounded in that both input (feeder cattle and feed) and product (fed cattle) prices became quite variable after 1972. This uncertainty, accompanied by considerable losses in cattle feeding during the 1973-1975 period, has made hedging a more desirable option [1, 9]. Several studies have examined a short hedge on live cattle at the beginning of the feeding period as a means of reducing risk and increasing returns to cattle feeders. Selective hedging strategies generally reduced the variance of returns per head as well as improved returns during periods when cash feeding was unprofitable [2, 5]. Routine hedging of every pen clearly reduced profits during periods when cattle prices were rising while providing some protection during cash-feeding loss periods [6]. Feeding live cattle on a cash basis was more profitable than routine hedging prior to 1973 [6].

Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 10 , Issue 2 , December 1978 , pp. 35 - 42
Copyright
Copyright © Southern Agricultural Economics Association 1978

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References

[1]Fleming, B. “Futures Work-If You Don't Gamble,” BEEF, Volume 14, March 1978, pp. 3–5.Google Scholar
[2]Holland, D., Purcell, W. D., and Hague, T. M.. “Mean-Variance of Alternative Hedging Strategies,” Southern Journal of Agricultural Economics, Volume 54, August 1972.Google Scholar
[3]Johnston, L. D. “An Dynamic Approach to Integrated Hedging for Feedlots in the Texas High Plains,” unpublished M.S. thesis, Texas A&M University, August 1977.Google Scholar
[4]Leuthold, R. M.Actual and Potential Use of the Livestock Futures Market by Illinois Producers, Illinois Agricultural Experiment Report AERR 141, December 1975.Google Scholar
[5]McCoy, J. H. and Price, R. V.. Cattle Hedging Strategies, Bulletin 591, Kansas Agricultural Experiment Station, August 1975.Google Scholar
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[7]Purcell, W. D. “Effective Hedging of Live Cattle,” Commodities, July 1977, pp. 26–30.Google Scholar
[8]Schaefer, H. H. “The Determination of Basis Patterns and the Results of Various Hedging Strategies for Live Cattle and Live Hogs,” unpublished M.S. thesis, Iowa State University, 1974.Google Scholar
[9]Webb Publications. “Cattle Hedging Will Work, Say Big Feedlot Managers,” BEEF, Volume 13, June 1977, pp. 2–3.Google Scholar