Hedging Holstein steers in the live cattle futures market

Finishing Holstein steers for beef has become common largely because the market for veal, which was the primary use of dairy calves in the past, has contracted. In addition, changes in consumer preferences for leaner meat products have made beef from finished Holstein steers more acceptable. Other d...

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Published in:Applied economic perspectives and policy 1996-01, Vol.18 (1), p.103-114
Main Author: Buhr, B.L. (University of Minnesota.)
Format: Article
Language:English
Subjects:
Agricultural economics
Beef
Beef cattle
BOEUF
BREEDS (ANIMALS)
BUEY
BULLOCKS
Cash
CASH MARKETS
Feeder cattle
Financial risk
Futures contracts
Futures markets
FUTURES TRADING
HOLSTEIN-FRIESIAN
MARCHE A TERME
MARKET PRICES
METHODE STATISTIQUE
METODOS ESTADISTICOS
MINNESOTA
OPERACIONES A PLAZO
PRECIOS DE MERCADO
PRIX DE MARCHE
RACE (ANIMAL)
RAZAS (ANIMALES)
RIESGO
RISK
RISQUE
STATISTICAL METHODS
Steers
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description Finishing Holstein steers for beef has become common largely because the market for veal, which was the primary use of dairy calves in the past, has contracted. In addition, changes in consumer preferences for leaner meat products have made beef from finished Holstein steers more acceptable. Other desirable production characteristics of raising Holstein steers include uniform growth rates and carcass composition. However, significant cash price differences between finished Holstein steers and traditional beef breeds exist. These price differences reflect yield and quality differences of Holstein steers compared to beef steers. This study investigates whether these cash price differences affect the risk reduction potential for hedging Holstein steers compared to hedging beef-type steers in the live cattle futures market. Hedging Holstein steers represents a form of cross-hedging when using the live cattle futures market, and this may result in differences in hedging risk and hedging ratios for Holstein steers compared to their beef breed counterparts. Hedge ratios and hedge riskiness are calculated and compared for finished Holstein steers and finished beef-type steers using cash prices observed in the South St. Paul terminal market for the years 1988 to 1994. Hedge ratios between Holstein and beef steers do not differ significantly, and the riskiness of hedging is similar for Holstein steers and beef-type steers. Hence, Holstein steer feeders may find hedging in the live cattle futures markets a useful tool for price risk protection
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Hedging Holstein steers represents a form of cross-hedging when using the live cattle futures market, and this may result in differences in hedging risk and hedging ratios for Holstein steers compared to their beef breed counterparts. Hedge ratios and hedge riskiness are calculated and compared for finished Holstein steers and finished beef-type steers using cash prices observed in the South St. Paul terminal market for the years 1988 to 1994. Hedge ratios between Holstein and beef steers do not differ significantly, and the riskiness of hedging is similar for Holstein steers and beef-type steers. 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This study investigates whether these cash price differences affect the risk reduction potential for hedging Holstein steers compared to hedging beef-type steers in the live cattle futures market. Hedging Holstein steers represents a form of cross-hedging when using the live cattle futures market, and this may result in differences in hedging risk and hedging ratios for Holstein steers compared to their beef breed counterparts. Hedge ratios and hedge riskiness are calculated and compared for finished Holstein steers and finished beef-type steers using cash prices observed in the South St. Paul terminal market for the years 1988 to 1994. Hedge ratios between Holstein and beef steers do not differ significantly, and the riskiness of hedging is similar for Holstein steers and beef-type steers. 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(University of Minnesota.)</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Hedging Holstein steers in the live cattle futures market</atitle><jtitle>Applied economic perspectives and policy</jtitle><addtitle>Review of Agricultural Economics</addtitle><date>1996-01</date><risdate>1996</risdate><volume>18</volume><issue>1</issue><spage>103</spage><epage>114</epage><pages>103-114</pages><issn>1058-7195</issn><issn>2040-5790</issn><eissn>1467-9353</eissn><eissn>2040-5804</eissn><abstract>Finishing Holstein steers for beef has become common largely because the market for veal, which was the primary use of dairy calves in the past, has contracted. In addition, changes in consumer preferences for leaner meat products have made beef from finished Holstein steers more acceptable. Other desirable production characteristics of raising Holstein steers include uniform growth rates and carcass composition. However, significant cash price differences between finished Holstein steers and traditional beef breeds exist. These price differences reflect yield and quality differences of Holstein steers compared to beef steers. This study investigates whether these cash price differences affect the risk reduction potential for hedging Holstein steers compared to hedging beef-type steers in the live cattle futures market. Hedging Holstein steers represents a form of cross-hedging when using the live cattle futures market, and this may result in differences in hedging risk and hedging ratios for Holstein steers compared to their beef breed counterparts. Hedge ratios and hedge riskiness are calculated and compared for finished Holstein steers and finished beef-type steers using cash prices observed in the South St. Paul terminal market for the years 1988 to 1994. Hedge ratios between Holstein and beef steers do not differ significantly, and the riskiness of hedging is similar for Holstein steers and beef-type steers. Hence, Holstein steer feeders may find hedging in the live cattle futures markets a useful tool for price risk protection</abstract><pub>Oxford University Press</pub><doi>10.2307/1349670</doi><tpages>12</tpages></addata></record>
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ispartof Applied economic perspectives and policy, 1996-01, Vol.18 (1), p.103-114
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1467-9353
2040-5804
language eng
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source JSTOR Archival Journals and Primary Sources Collection
subjects Agricultural economics
Beef
Beef cattle
BOEUF
BREEDS (ANIMALS)
BUEY
BULLOCKS
Cash
CASH MARKETS
Feeder cattle
Financial risk
Futures contracts
Futures markets
FUTURES TRADING
HOLSTEIN-FRIESIAN
MARCHE A TERME
MARKET PRICES
METHODE STATISTIQUE
METODOS ESTADISTICOS
MINNESOTA
OPERACIONES A PLAZO
PRECIOS DE MERCADO
PRIX DE MARCHE
RACE (ANIMAL)
RAZAS (ANIMALES)
RIESGO
RISK
RISQUE
STATISTICAL METHODS
Steers
title Hedging Holstein steers in the live cattle futures market
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