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An analysis of live cattle option hedging strategies
Author(s) -
Schroeder Ted C.,
Grunewald Orlen C.,
Langemeier Scott A.,
Allen Del M.
Publication year - 1989
Publication title -
agribusiness
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.57
H-Index - 43
eISSN - 1520-6297
pISSN - 0742-4477
DOI - 10.1002/1520-6297(198903)5:2<153::aid-agr2720050207>3.0.co;2-q
Subject(s) - futures contract , cash , fed cattle , feeder cattle , fence (mathematics) , economics , feedlot , business , financial economics , forward contract , actuarial science , agricultural science , finance , mathematics , zoology , ecology , environmental science , combinatorics , biology
Options on cattle futures have expanded the realm of alternative marketing strategies available to cattle feeders. This study utilized actual feedlot data to compare the return distributions from 31 separate fed cattle marketing strategies using cash, futures, put option, and call option markets. The results indicate that different strategies are preferred depending upon the risk preferences of the cattle feeder and the length of the feeding period. In general, over the 1980 through 1985 period, cash, hedging, and in‐the‐money put option purchases dominated spread and fence strategies for risk averse agents.