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Document Type

Thesis - University Access Only

Award Date

1998

Degree Name

Master of Science (MS)

Department

Economics

First Advisor

Dillon Feuz

Abstract

The risk-return tradeoffs for various retained ownership programs in conjunction with several pricing/hedging strategies were examined. E-V analysis, and first and second degree stochastic dominance were used to determine risk efficient retained ownership and marketing strategies. From a risk standpoint, it appears that hedging may not always provide the most efficient outcome for producers. The risk efficient marketing strategy varies depending upon the specific retained ownership program. Recent changes to the Chicago Mercantile Exchange Feeder Cattle Futures Contract were examined to analyze feeder cattle basis risk in selected markets for two different weight categories of feeder cattle to determine if changes in the contract have altered producers' ability to hedge feeder cattle. Based on the results, hedging effectiveness has been enhanced for 700-800 pound feeder cattle. The most recent change to the feeder cattle contract significantly increased the basis variability for 500-600 pound feeder steers in all markets studied. A regression analysis was used to find predictive seasonal basis patterns, which accounted for much of the increased variability. In most markets the feeder cattle contract can still be used to effectively hedge lighter weight (500-600 pound) feeder steers.

Library of Congress Subject Headings

Cattle trade
Cattle -- Marketing
Futures market
Hedging (Finance)

Format

application/pdf

Publisher

South Dakota State University

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