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Price Responses in Forward Contracting: Do We Limit The Upside And Expose The Downside?
Economics Presentations, Posters and Proceedings
  • Keri Jacobs, Iowa State University
  • Ziran Li, Iowa State University
  • Dermot Hayes, Iowa State University
Document Type
Conference Proceeding
Publication Date
1-1-2016
Conference Title
2016 Agricultural & Applied Economics Association Annual Meeting
Conference Date
July 31-August 2, 2016
Geolocation
(42.3600825, -71.05888010000001)
Abstract
It’s a salient observation in the literature that hedgers’ net short futures positions for agricultural commodities, as reported in the Commodity Futures Trading Commission (CFTC) Disaggregated Commitment of Traders reports (DCOT), correlate strongly with futures prices. However, the DCOT data limits researchers’ ability to discern what influences producers’ hedging decisions from other activities such as storage hedges and spread trades. This is because the DCOT data aggregates open positions of all active contracts. This paper addresses this issue by examining the potential economic stimuli of corn producers’ forward contracting decisions before harvest using a unique data set of forward contracts between producers and large grain and farm supply cooperative over a five-year period. We find that producers forward price more of their crops when the futures price is trending up, and they are reluctant to hedge when the futures price is falling. We show that the producer level hedging data and the DCOT hedge series respond in a remarkably similar manner to economic stimuli despite this dissimilarity.
Comments

This is a Selected Paper prepared for presentation at the 2016 Agricultural & Applied Economics Association Annual Meeting, Boston, Massachusetts, July 31-August 2.

Rights
Copyright 2016 by Keri Jacobs, Ziran Li and Dermot Hayes. All rights reserved. Readers may make copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.
Copyright Owner
Keri Jacobs, Ziran Li and Dermot Hayes
Language
en
File Format
application/pdf
Citation Information
Keri Jacobs, Ziran Li and Dermot Hayes. "Price Responses in Forward Contracting: Do We Limit The Upside And Expose The Downside?" Boston, MA, United States(2016)
Available at: http://works.bepress.com/dermot_hayes/145/