Transaction frequency and hedging in commodity processing

Research output: Contribution to journalArticle

4 Scopus citations

Abstract

This study examines the effect of transaction frequency on profit and cash flow risk for firms that periodically purchase inputs, continuously transform inputs into outputs, and periodically sell output. Soybean-processing profit and cash flows are computed for unhedged, direct-hedged, and risk-minimizing-hedged processing with up to 52 transactions per year. Findings include: (a) higher transaction frequencies result in lower unhedged profit and cash flow risk and lower hedging effectiveness, (b) anticipatory hedging provides less risk protection than product-transformation hedging, (c) stabilizing cash flow stabilizes annual profits but the converse does not hold, and (d) hedging profits makes cash flow more variable.

Original languageEnglish (US)
Pages (from-to)411-430
Number of pages20
JournalJournal of Agricultural and Resource Economics
Volume30
Issue number3
StatePublished - Dec 1 2005

Keywords

  • Process hedging
  • Risk management
  • Soybean crushing

ASJC Scopus subject areas

  • Animal Science and Zoology
  • Agronomy and Crop Science
  • Economics and Econometrics

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