Single-Commodity versus Joint Hedging in Cattle Feeding Cycle: Is Joint Hedging Always Essential?

By: Fei, Chengcheng J.; Vedenov, Dmitry V.; Stevens, Reid B.; Anderson, David P.
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Fei, Chengcheng J.; Vedenov, Dmitry V.; Stevens, Reid B.; Anderson, David P., Single-Commodity versus Joint Hedging in Cattle Feeding Cycle: Is Joint Hedging Always Essential?, Journal of Agricultural and Resource Economics, Volume 46, Issue 3, September 2021, Pages 464-478

The paper analyzes the effectiveness of joint- versus single-commodity hedging for inputs and outputs of the cattle feeding cycle using the second-order lower partial moment (LPM2) as the risk measure. Joint hedging always results in higher hedging effectiveness than the single-commodity hedging, but the difference is often small. The difference in performance is found to be explained by the commodity price dependence measures (Kendall's _). Ranges of _ leading to substantial improvement in risk reduction due to joint hedging are identified. The joint hedging strategy is worth implementing when the observed price dependence measures fall within the identified ranges.