Hostname: page-component-586b7cd67f-t7fkt Total loading time: 0 Render date: 2024-11-22T12:11:30.370Z Has data issue: false hasContentIssue false
  • English
  • Français

Cash Ethanol Cross-Hedging Opportunities

Published online by Cambridge University Press:  28 April 2015

Jason R.V. Franken  and
Joe L. Parcell
Jason R.V. Franken
Affiliation:
Department of Agricultural and Consumer Economics, University of Illinois–Champaign, IL
Joe L. Parcell
Affiliation:
Department of Agricultural Economics, University of Missouri-Columbia, MO
Get access Rights & Permissions [Opens in a new window]

Abstract

Increased use of alternative fuels and low commodity prices have contributed to the recent expansion of the U.S. ethanol industry. As with any competitive industry, some level of output price risk exists in the form of volatility; yet, no actively traded ethanol futures market exists to mitigate output price risk. This study reports estimated minimum variance cross-hedge ratios between Detroit spot cash ethanol and the New York Mercantile Exchange unleaded gasoline futures for 1-, 4-, 8-, 12-, 16-, 20-, 24-, and 28-week hedge horizons. The research suggests that a one-to-one cross-hedge ratio is not appropriate for some horizons.

Keywords

cross-hedgingethanolgasG13Q13Q42
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 35 , Issue 3 , December 2003 , pp. 510 - 516
Copyright
Copyright © Southern Agricultural Economics Association 2003

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

American Coalition for Ethanol. Internet site: http://www.ethanol.org (Accessed July 22, 2001).Google Scholar
Anderson, R.W., and Danthine, J.R. “Cross-Hedging.” Journal of Political Economy 89(1981):1182–1196.CrossRefGoogle Scholar
Benninga, S., Eldor, R., and Zilcha, I.. “The Optimal Hedge Ratio in Unbiased Futures Markets.” The Journal of Futures Markets 4(1984):155–159.CrossRefGoogle Scholar
Brorsen, B.W., Buck, D.W., and Koontz, S.R.. “Hedging Hard Red Winter Wheat: Kansas City versus Chicago.” Journal of Futures Markets 18(1998):449–466.3.0.CO;2-Q>CrossRefGoogle Scholar
Buhr, B.L. “Hedging Holstein Steers in the Live Cattle Futures Market.” Review of Agricultural Economics 18(January 1996):103–114.Google Scholar
Commodity Research Bureau (CD-ROM). Commodity Research Bureau, 330 S Wells, Suite 1112, Chicago, IL 60606, December 2001.Google Scholar
Davies, C. Personal communication. Reed Business Information, Limited, July 2001.Google Scholar
Energy Information Administration and Renewable Fuels Association. Internet site: http://www.eia.doe.gov/oiLgas/petroleum/data_publications/wrgp/mogas_history.html (Accessed June 10, 2001).Google Scholar
Gerhold, M. Personal communication. Northeast Missouri Grain LLC, September 18, 2002.Google Scholar
Graff, J., Schroeder, T., Jones, R., and Dhuyvetter, K.. “Cross-Hedging Agricultural Commodities.” Kansas State University, Cooperative Extension Service Bulletin MF-2284, 1997.Google Scholar
Hayenga, M.L., and DiPietre, D.D.. “Cross-Hedging Wholesale Pork Products using Live Hog Futures.” American Journal of Agricultural Economics 64(1982):747–751.CrossRefGoogle Scholar
Johnson, L.L. “The Theory of Hedging and Speculation in Commodity Futures.” Review of Economic Studies 27(1960):139–151.CrossRefGoogle Scholar
Kahl, K.M. “Determination of the Recommended Hedging Ratio.” American Journal of Agricultural Economics 65(1983):603–605.CrossRefGoogle Scholar
Kapell, J. Personal Communication. SJH & Company, Inc., February 2002.Google Scholar
Leuthold, R.M., Junkus, J.C., and Cordier, J.E.. The Theory and Practice of Futures Markets. Lexington, MA: Lexington Books, 2000.Google Scholar
Myers, R.J., and Thompson, S.R.. “Generalized Optimal Hedge Ratio Estimation.” American Journal of Agricultural Economics 4(November 1989):858–868.CrossRefGoogle Scholar
National Corn Growers Association. “Senate Legislation Promotes NCGA's Vision for Ethanol's Growth.” Internet site: http://www.ncga.com/news/notd/2001/June/060801a.htm (Accessed June 12, 2001).Google Scholar
Rahman, S.M., Turner, S.C., and Costa, E.E. “Cross-Hedging Cottonseed Meal.” Journal of Agribusiness 19(Fall 2001):163–171.Google Scholar
Schroeder, T.C., and Mintert, J.. “Hedging Steers and Heifers.” Western Journal of Agricultural Economics 13(1988):316–326.Google Scholar
SHAZAM User's Reference Manual,Version 9.0. New York: McGraw-Hill, 2001.Google Scholar