Transaction Frequency and Hedging in Commodity Processing
This study examines the effect of transaction frequency on profit and cash flow risk for firms that periodically purchase inputs, continuously transform inputs into outputs, and periodically sell output. Soybean-processing profit and cash flows are computed for unhedged, direct-hedged, and risk-mini...
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| Format: | Article |
| Language: | English |
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Western Agricultural Economics Association
2005-12-01
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| Series: | Journal of Agricultural and Resource Economics |
| Subjects: | |
| Online Access: | https://ageconsearch.umn.edu/record/30985 |
| _version_ | 1829134605524926464 |
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| author | Roger A. Dahlgran |
| author_facet | Roger A. Dahlgran |
| author_sort | Roger A. Dahlgran |
| collection | DOAJ |
| description | This study examines the effect of transaction frequency on profit and cash flow risk for firms that periodically purchase inputs, continuously transform inputs into outputs, and periodically sell output. Soybean-processing profit and cash flows are computed for unhedged, direct-hedged, and risk-minimizing-hedged processing with up to 52 transactions per year. Findings include: (a) higher transaction frequencies result in lower unhedged profit and cash flow risk and lower hedging effectiveness, (b) anticipatory hedging provides less risk protection than product-transformation hedging, (c) stabilizing cash flow stabilizes annual profits but the converse does not hold, and (d) hedging profits makes cash flow more variable. |
| first_indexed | 2024-12-14T18:05:44Z |
| format | Article |
| id | doaj.art-3e66bdc9365645f1891ead1b77429aaa |
| institution | Directory Open Access Journal |
| issn | 1068-5502 2327-8285 |
| language | English |
| last_indexed | 2024-12-14T18:05:44Z |
| publishDate | 2005-12-01 |
| publisher | Western Agricultural Economics Association |
| record_format | Article |
| series | Journal of Agricultural and Resource Economics |
| spelling | doaj.art-3e66bdc9365645f1891ead1b77429aaa2022-12-21T22:52:21ZengWestern Agricultural Economics AssociationJournal of Agricultural and Resource Economics1068-55022327-82852005-12-0130341143010.22004/ag.econ.3098530985Transaction Frequency and Hedging in Commodity ProcessingRoger A. DahlgranThis study examines the effect of transaction frequency on profit and cash flow risk for firms that periodically purchase inputs, continuously transform inputs into outputs, and periodically sell output. Soybean-processing profit and cash flows are computed for unhedged, direct-hedged, and risk-minimizing-hedged processing with up to 52 transactions per year. Findings include: (a) higher transaction frequencies result in lower unhedged profit and cash flow risk and lower hedging effectiveness, (b) anticipatory hedging provides less risk protection than product-transformation hedging, (c) stabilizing cash flow stabilizes annual profits but the converse does not hold, and (d) hedging profits makes cash flow more variable.https://ageconsearch.umn.edu/record/30985process hedgingrisk managementsoybean crushing |
| spellingShingle | Roger A. Dahlgran Transaction Frequency and Hedging in Commodity Processing Journal of Agricultural and Resource Economics process hedging risk management soybean crushing |
| title | Transaction Frequency and Hedging in Commodity Processing |
| title_full | Transaction Frequency and Hedging in Commodity Processing |
| title_fullStr | Transaction Frequency and Hedging in Commodity Processing |
| title_full_unstemmed | Transaction Frequency and Hedging in Commodity Processing |
| title_short | Transaction Frequency and Hedging in Commodity Processing |
| title_sort | transaction frequency and hedging in commodity processing |
| topic | process hedging risk management soybean crushing |
| url | https://ageconsearch.umn.edu/record/30985 |
| work_keys_str_mv | AT rogeradahlgran transactionfrequencyandhedgingincommodityprocessing |