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Oscillators As Decision Guides in Hedging Feeder Cattle: An Economic Evaluation

Published online by Cambridge University Press:  28 April 2015

James R. Russell
Affiliation:
Department of Agricultural Economics, Virginia Polytechnic Institute and State University
John R. Franzmann
Affiliation:
Department of Agricultural Economics, Oklahoma State University

Extract

In recent years, extremely variable price movements have caused a high degree of price risk in the cattle industry. Cattle producers who chose to accept this price risk at the correct time had extraordinary gains, whereas those who accepted this risk at the improper time had returns below cost of production. Hedging offers the cattle producer an excellent opportunity to transfer a portion of the price risk to another party. Selective transfer of the risk can both increase the magnitude of returns and decrease their variance [1, 2, 4]. The family of technical tools called oscillators, one of the most useful tools employed by commodity traders [6, p. 34], was used to develop hedging strategies for feeder cattle.

Type
Research Article
Copyright
Copyright © Southern Agricultural Economics Association 1979

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References

[1] Brown, Robert A.Quantitative Models to Predict Monthly Average Feeder Steer Prices and Related Hedging Strategies,” unpublished M.S. thesis, Oklahoma State University, 1977.Google Scholar
[2] Lehenbauer, Jerry D.Simulation of Short and Long Feeder Cattle Hedging Strategies and Technical Price Analysis of the Feeder Cattle Futures Market,” unpublished M.S. thesis, Oklahoma State University, 1978.Google Scholar
[3] Oster, Merrill J.Why More Farmers Must Use Futures,” Commodities, Volume 6, November 1977, pp. 2427.Google Scholar
[4] Purcell, Wayne D., Hague, Terry M., and Holland, David. Economic Evaluation of Alternative Hedging Strategies for the Cattle Feeder, Oklahoma Agricultural Experiment Station, Bulletin B-702, September 1972.Google Scholar
[5] Tewles, Richard J., Harlow, Charles V., and Stone, Herbert J.. The Commodity Futures Game, Who Wins?, Who Loses?, Why? New York: McGraw-Hill Book Company, 1978.Google Scholar
[6] Wilder, J. Welles Jr.A Momentum Oscillator that Can Help You Spot Market Turns,” Commodities, Volume 7, June 1978, pp. 34-35, 4647.Google Scholar