Inventory and Transformation Hedging Effectiveness in Corn Crushing

Recently developed ethanol futures contracts now allow direct-hedging by ethanol producers. This study examines the effectiveness of one-through eight-week hedges between 2005 and 2008. Our findings show (a) ethanol inventory hedging effectiveness is significant for two-week and longer hedges, and increases with the hedging horizon; (b) ethanol futures are significantly superior to gasoline futures for hedging ethanol price risk for two-week and longer hedges; (c) the corn crushing hedge, utilizing corn and ethanol futures, is effective and provides price risk management capabilities comparable to those provided by the soybean crush hedge.


Dahlgran, Roger A., Inventory and Transformation Hedging Effectiveness in Corn Crushing, Journal of Agricultural and Resource Economics, Volume 34, Issue 1, April 2009, Pages 154-171

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