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Managing economic risk in value-based marketing of fed cattle
Authors:Ardian Harri,John Michael Riley,John D. Anderson ,Keith H. Coble &dagger  
Affiliation:Mississippi State University, Department of Agricultural Economics, P.O. Box 5187, Mississippi State, MS 39762, USA
Abstract:This research investigates optimal price risk management strategies for fed cattle producers engaged in grid pricing. Stochastic simulation is used to determine optimal hedge ratios for fed cattle priced on a live weight basis or on a series of grids that vary in terms of premium/discount structure as well as base price. Results indicate that the optimal hedging strategy is greatly affected by the base price used in a particular grid. This has significant implications for pricing efficiency in the cattle market. Base prices that are linked more closely with downstream markets offer the potential to improve pricing efficiency; however, the risk associated with these prices is difficult to manage effectively with existing futures instruments.
Keywords:Q12    Q13
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