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Abstract
One potential tool fertilizer dealers and producers have to protect themselves against fertilizer price risk is the fertilizer swaps market. Swaps usually settle using a floating variable price that is determined by an index of cash prices. This paper calculates hedge ratios and hedging effectiveness of urea and DAP (diammonium phosphate) swaps that settle using The Fertilizer Index with various spot price locations from the United States and internationally. Results show that urea and DAP swaps that settle using The Fertilizer Index perform poorly as a hedging tool over short time periods. As the hedging horizon increases, the hedging effectiveness of swaps improves.