Publish Date: 04 November 2020
Article Source: University of Nebraska–Lincoln
Article Link: Seasonal Forecast Based Preharvest Hedging
In the 4 November 2020 Cornhusker Economics newsletter this article describes how producers can use AER’s analog-based seasonal forecast in the early spring to make scientifically based hedging decisions for a corn crop in the coming season. Using past weather seasons (2001-2018) and a strictly defined hedging criteria, the results suggest producers would make additional net revenue per acre by using analogs. According to the criteria, a producer would hedge a majority of grain if the expected yield from the analogs was greater than three points below the trend line (-3%). Thus, a farmer would hedge unless the analogs considered drought to be a higher than normal risk. The size of the benefit of engaging in strategic hedging depends upon farm size. For example, the article showed a farm planting 700 acres of corn in each of the 18 years would receive an additional $205,076 over that period of time. Another benefit of the analogs is if a drought verifies, as it did in 2012, a farmer avoids having to pay buyback fees to cover a lost hedge.
The article can also be accessed here.
Authors on the article include Eric Hunt (AER), Cory Walters and Iyore Eronmwon (University of Nebraska-Lincoln) and Toni Klemm (Texas A&M University).
For more information contact: AER Staff Scientist Eric Hunt ( ehunt@aer.com ) 402-262-0111