The growth in winter canola acreage in the southern Great Plains has led to questions about the best way to reduce price risk because there is no U.S. canola futures market. Cross-hedge ratios and hedging effectiveness are calculated, and encompassing tests are conducted for short-horizon hedging. Possible cross-hedge markets considered are U.S. soybeans, soybean oil, soybean meal, hard red winter wheat, and Canadian canola. The selected cross hedge is a combination of soybean oil and meal futures, but its hedging effectiveness is substantially less than what is typically provided by a direct hedge.

In an inverted market, current prices are higher than future prices and thus the price of storage is negative. Market inversions as measured with futures spreads rarely occur during early months of the crop year. However, market inversions frequently occur across crop years and near the end of the crop year. In the last half of the crop year, market inversions clearly reflect a signal to sell stocks. Too few inversions occur early in the crop year to reach a definitive conclusion for that period. Behavioral finance offers possible explanations of why producers would hold stocks in an inverted market.

Both market advisors and researchers have often suggested multiyear rolloverhedging as a way to increase producer returns. This study determines whetherrollover hedging can increase expected returns for producers. For rolloverhedging to increase expected returns, futures prices must follow amean-reverting process. To test for the existence of mean reversion inagricultural commodity prices, this study uses a longer set of price dataand a wider range of test procedures than past research. With the use ofboth the return predictability test from long-horizon regression and thevariance ratio test, we find that mean reversion does not exist in futuresprices for corn, wheat, soybean, soybean oil, and soybean meal. The findingsare consistent with the weak form of market efficiency. Simulated tradingresults for 3-year rollover hedges provide additional evidence that theexpected returns to the rollover hedging strategies are not statisticallydifferent from the expected returns to routine annual hedges and cash saleat harvest.