@article{Bamba:19028,
      recid = {19028},
      author = {Bamba, Ibrahim and Maynard, Leigh J.},
      title = {Hedging-Effectiveness of Milk Futures Using Value-At-Risk  Procedures},
      address = {2004},
      number = {1268-2016-101956},
      series = {2004 Conference, St. Louis, MO, April 19-20, 2004},
      pages = {19},
      year = {2004},
      abstract = {The effectiveness of the Class III Milk futures market is  analyzed in terms of the reduction in Value-at-Risk (VaR)  for milk producers located in four regions: Wisconsin,  Northeast, Florida and California. Constant hedge ratios  are estimated using Myers and Thompson's (1989) generalized  conditional hedge ratio technique, and time-varying hedge  ratios are estimated using an exponentially weighted moving  average method. After defining milk price risk as the  deviation of the actual milk price from its expected value,  the effectiveness of uniform hedging strategies in the  Class III milk futures market is assessed using three  popular methods for VaR calculations: the parametric  method, the historical method, and the Monte Carlo  simulation method. The results suggest that uniform hedging  strategies can reduce substantially the VaR of milk cash  price for appropriately chosen hedge length and hedge  signals. For example, a uniform hedge placed seven months  prior to delivery and triggered at $11.00 cwt reduces the  mailbox price tail risk more than the same uniform hedging  established four months before delivery. As expected the  higher the Class III utilization the more effective hedging  seems. The magnitude of the hedging effectiveness seems to  depend more on the hedge length and the hedge trigger than  on the methodology used to obtain the hedge ratio or the  VaR.},
      url = {http://ageconsearch.umn.edu/record/19028},
      doi = {https://doi.org/10.22004/ag.econ.19028},
}