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Cash Ethanol Cross-Hedging Opportunities

Published online by Cambridge University Press:  28 April 2015

Jason R.V. Franken  and
Joe L. Parcell
Jason R.V. Franken
Affiliation:
Department of Agricultural and Consumer Economics, University of Illinois–Champaign, IL
Joe L. Parcell
Affiliation:
Department of Agricultural Economics, University of Missouri-Columbia, MO
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Abstract

Increased use of alternative fuels and low commodity prices have contributed to the recent expansion of the U.S. ethanol industry. As with any competitive industry, some level of output price risk exists in the form of volatility; yet, no actively traded ethanol futures market exists to mitigate output price risk. This study reports estimated minimum variance cross-hedge ratios between Detroit spot cash ethanol and the New York Mercantile Exchange unleaded gasoline futures for 1-, 4-, 8-, 12-, 16-, 20-, 24-, and 28-week hedge horizons. The research suggests that a one-to-one cross-hedge ratio is not appropriate for some horizons.

Keywords

cross-hedgingethanolgasG13Q13Q42
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 35 , Issue 3 , December 2003 , pp. 510 - 516
Copyright
Copyright © Southern Agricultural Economics Association 2003

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