A Study on the Use of Futures Markets to Manage Price Risk of Cattle and Beef Industry in the U.S. and Japan

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  • 先物取引による肉牛と牛肉の価格リスク管理に関する実証分析
  • サキモノ トリヒキ ニヨル ニクギュウ ト ギュウニク ノ カカク リスク カ

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Abstract

I investigated how the CME (Chicako Mercantile Exchange) Live Cattle Futures have affected cattle and beef producers in the U.S. and how Japan beef futures contracts would function in the future. (1) The date for 4 livestock commodity futures on the CME, which are live cattle, feeder cattle, live hog and frozen pork bellies from 1984 to 1994 were esed. Coefficients of correlation for each year betweem the two out of the two out of the four livestock fututes commodities were varied. Therefore, inter-commodity spreads could be a risky technique. (2) The data from 1984 to 1993 on 60 types of commodities like cattle and beef were used to calulate the basis between steer cash prices and CME live cattle nearby prices. The high coefficients of correlation between cash prices and nearby prices were larger than those of the basis standard deviations of cash prices. Therefore, when you shift cash price risk to the basis price risk, the risk would be smaller. (3) On CME Live Cattle Futures market from January 1993 to June 1994, the percent of futures open interest represented by hedgers is around 80% and percent by speculators is around 20%. Therefore, the CME Live Cattle Futures market in the U.S. is nowadays not as much a speculative market as a hedging market, where big meat pachers and feeders participate in to manage price risk. (4) Coefficients of correlation between steer cash prices and live cattle nearby prices on the CME futures markets in the U.S. from 1990 to 1995 was 0.94 for 1, 450 examined days. Coefficients of variation during this period were 7.39% for cash prices, 6.75% for nearby prices, and 5.41% for distant futures prices. Therefore, cash prices varied the greatest. From January 1990 to October 1995, I suggest that Live Cattle Futures prices have a price smoothing function to steer cash prices. (5) In Japan, The Tokyo Grain Exchange is considering futures contracts based on the Australian grass-fed chilled, full-set as hedging tools. If these is a beef futures market in Japan, many different domestic segments, i.e., beef producers, importers, restaurants, meat packers, could lock in their selling prices. Consumers could enjoy stable beef prices using a price smoothing function of the beef futures market.

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