Integrated Cattle Feeding Hedging Strategies, 1972-1976

Author:

Shafer Carl E.,Griffin Wade L.,Johnston Larry D.

Abstract

Most major crop and livestock prices became considerably more variable after 1972, resulting in increased producer price risk. Uncertainty in cattle feeding was compounded in that both input (feeder cattle and feed) and product (fed cattle) prices became quite variable after 1972. This uncertainty, accompanied by considerable losses in cattle feeding during the 1973-1975 period, has made hedging a more desirable option [1, 9]. Several studies have examined a short hedge on live cattle at the beginning of the feeding period as a means of reducing risk and increasing returns to cattle feeders. Selective hedging strategies generally reduced the variance of returns per head as well as improved returns during periods when cash feeding was unprofitable [2, 5]. Routine hedging of every pen clearly reduced profits during periods when cattle prices were rising while providing some protection during cash-feeding loss periods [6]. Feeding live cattle on a cash basis was more profitable than routine hedging prior to 1973 [6].

Publisher

Cambridge University Press (CUP)

Subject

Economics and Econometrics,Agricultural and Biological Sciences (miscellaneous)

Reference9 articles.

1. Price R. V. “The Effects of Traditional and Managed Hedging Strategies for Cattle Feeders,” unpublished M.S. thesis, Kansas State University, 1976.

2. Schaefer H. H. “The Determination of Basis Patterns and the Results of Various Hedging Strategies for Live Cattle and Live Hogs,” unpublished M.S. thesis, Iowa State University, 1974.

3. Cattle Hedging Will Work, Say Big Feedlot Managers;BEEF,,1977

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