Managing Price Risk in Volatile Grain Markets, Issues and Potential Solutions

During 2008 extreme price volatility in grain markets led to country elevators incurring unprecedentedly large margin calls on their futures hedges. As a result elevators’ traditional liquidity sources and lines of credit were stretched to breaking point. This article explores the potential liquidity benefits of making available an Over-the-Counter Margin Credit Swap contract to grain hedgers. The swap would enable hedgers to draw upon sources of capital outside the farm credit system to provide liquidity needed to make margin calls. Simulation results clearly show that a Margin Credit Swap contract would provide significant liquidity benefits to hedgers during volatile periods.

Issue Date:
Aug 01 2009
Publication Type:
Journal Article
PURL Identifier:
Published in:
Journal of Agricultural and Applied Economics, Volume 41, Number 2
Page range:
JEL Codes:
G32; G13; Q14

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

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