Cash Forward Contracting versus Hedging of Fed Cattle, and the Impact of Cash Contracting on Cash Prices
This research examines cash forward contracting of fed cattle. for an individual feeder, a cash contract eliminates basis risk (as compared to a futures hedge). However, the disadvantage is that the contract price is estimated to be lower than the futures hedge price by $.28 - $.59/ cwt for steers a...
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| Format: | Article |
| Language: | English |
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Western Agricultural Economics Association
1992-07-01
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| Series: | Journal of Agricultural and Resource Economics |
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| Online Access: | https://ageconsearch.umn.edu/record/30729 |
| Summary: | This research examines cash forward contracting of fed cattle. for an individual feeder, a cash contract eliminates basis risk (as compared to a futures hedge). However, the disadvantage is that the contract price is estimated to be lower than the futures hedge price by $.28 - $.59/ cwt for steers and $.86 - $1.64.cwt for heifers. From the industry perspective, contracting appears to have a negative impact on cash prices. An increase of 1,000 head in U.S. monthly contract cattle shipments is associated with a $.003-$.009/cwt decrease in the U.S. average cash price. The negative impact of cash contracting varies by state. |
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| ISSN: | 1068-5502 2327-8285 |