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Hedging Effectiveness Around U.S. Department of Agriculture Crop Reports

Published online by Cambridge University Press:  26 January 2015

Andrew McKenzie  and
Navinderpal Singh
Andrew McKenzie
Affiliation:
Department of Agricultural Economics and Agribusiness, University of Arkansas, Fayetteville, AR
Navinderpal Singh
Affiliation:
Department of Agricultural Economics and Agribusiness, University of Arkansas, Fayetteville, AR
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Abstract

It is well documented that “unanticipated” information contained in United States Department of Agriculture (USDA) crop reports induces large price reactions in corn and soybean markets. Thus, a natural question that arises from this literature is: To what extent are futures hedges able to remove or reduce increased price risk around report release dates? This paper addresses this question by simulating daily futures returns, daily cash returns, and daily hedged returns around report release dates for two storable commodities (corn and soybeans) in two market settings (North Central Illinois and Memphis, Tennessee). Various risk measures, including “Value at Risk,” are used to determine hedging effectiveness, and “Analysis of Variance” is used to uncover the underlying factors that contribute to hedging effectiveness.

Keywords

analysis of variancestorage hedgingUnited States Department of Agriculture Crop Reportsvalue at riskQ13D81
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 43 , Issue 1 , February 2011 , pp. 77 - 94
Copyright
Copyright © Southern Agricultural Economics Association 2011

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