MANAGING PRICE RISK IN COTTON PRODUCTION USING STRATEGIC ROLLOVER HEDGING

Research on rollover hedging for agricultural commodities has focused on the consequences of using existing contracts to substitute for missing long-term contracts. It appears that some grains are candidates for rollover hedging while livestock is not. Cotton was analyzed to evaluate the effectiveness of rollover hedging from 1982 to 1999. This paper demonstrates that strategic rollover hedging can be used as a substitute for missing long-term futures market and increase expected returns in cotton production. The estimated results reported average returns of 62.22, 65.36, 75.80, 79.09, and 69.14 cents per pound for cash sale, single-year hedge, 5, 2.5, and 1% three-year strategic rollover hedging strategies, respectively. Thus, it appears returns for three-year strategic rollover hedging were about 20% higher than under the other two strategies.


Issue Date:
2001
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/16708
PURL Identifier:
http://purl.umn.edu/16708
Total Pages:
13
Series Statement:
Faculty Series 01-09




 Record created 2017-04-01, last modified 2018-01-22

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