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Futures spread risk in soybean multiyear hedge‐to‐arrive contracts
Author(s) -
Blue E. Neal,
Hayenga Marvin L.,
Lence Sergio H.,
Baldwin E. Dean
Publication year - 1998
Publication title -
agribusiness
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.57
H-Index - 43
eISSN - 1520-6297
pISSN - 0742-4477
DOI - 10.1002/(sici)1520-6297(199811/12)14:6<467::aid-agr4>3.0.co;2-d
Subject(s) - futures contract , hedge , economics , crop insurance , financial economics , econometrics , crop , agricultural economics , agriculture , geography , forestry , ecology , archaeology , biology
Soybean futures spreads in the 1948–1997 period are evaluated for the associated monetary risks inherent in multiyear hedge‐to‐arrive contracts (HTAs). For all years, the probability of having a negative old crop–new crop spread is approximately 75%. However, the high‐price years have a 100% probability of having a negative spread and a 50–60% probability of having a negative spread exceeding 10 percent. The spread risk in high price years makes a multiyear HTA an imprecise hedge. Thus, establishing new crop prices close to current futures prices by initially using old crop futures is unlikely. © 1998 John Wiley & Sons, Inc.