Stanley R. Thompson

Generalized Optimal Hedge Ratio Estimation

A generalized approach to estimating optimal hedge ratios on futures markets is developed. The generalized approach is not difficult to apply and provides a framework for evaluating the appropriateness of conventional simple regression approaches to optimal hedge ratio estimation. In an application to storage hedging of corn, soybeans, and wheat, it is found that simple regression using price levels or returns leads to errors in optimal hedge ratio estimation but that simple regression using price changes provides reasonably accurate estimates.

Sales Loss Determination in Food Contamination Incidents: An Application to Milk Bans in Hawaii

This article presents a procedure for estimating sales loss following a food contamination incident with application to the case of heptachlor contamination of fresh fluid milk in Oahu, Hawaii, in 1982. A major finding is that media coverage following the incident had a significant impact on milk purchases and that negative coverage had a larger effect than positive coverage. This conclusion implies that public statements by producers or government to assure the public of safe food supplies may be ineffective in restoring consumer confidence following the discovery of a food safety problem.

Producer Returns from Increased Milk Advertising

Each year many agricultural commodity groups spend millions of dollars advertising and promoting generic products. However, empirical analyses of particular generic promotion ventures are scarce (Clement, Henderson, and Eley; Hochman, Regev, and Ward; Nerlove and Waugh). Advertising and promotional monies are often obtained from producers on a voluntary contribution basis, but a major criticism of voluntary programs is that in an atomistic industry the individual producer has little incentive to advertise since his particular share of the increased commodity demand is small. A major argument for mandatory participation is that of equity; however, little economic evidence is available to address the potential profitability of such expanded programs. Since market experimentation is costly, the historical promotional experience of a particular commodity group can provide an important economic input for use by other producers contemplating expanding their own advertising programs. For many years New York State dairy producers have voluntarily contributed to advertise and promote the generic product milk. Prior to May 1972, about 60% of the producers were voluntarily contributing at the rate of 3c per hundredweight. In May 1972, a New York State Dairy Promotion Order became effective with a mandatory assessment rate of 5r per hundredweight levied on milk produced in the state. The voluntary contributions generated about

Determinants of Milk Advertising Effectiveness

1.5 million annually compared to some

Risk Aversion and the Recommended Hedging Ratio

4 million available annually after the implementation of the Dairy Promotion Order. With the additional funds, several types of milk promotion activities were expanded. This paper focuses on the program area which has experienced the greatest funding increase-media advertising. Specifically, this paper assesses the effect on producer returns, by market, of the expanded fluid milk advertising effort made possible under the New York State Dairy Promotion Order. The selected model is reviewed, an interpretation of the estimated coefficients is presented, and, finally, an estimate of the returns to producers is presented followed by some implications of the analysis. Methodology

Offshore Commodity Hedging under Floating Exchange Rates

An analysis of the net returns to dairy farmers from generic fluid milk advertising is made in terms of the ability of advertising to increase the blend price of milk in excess of the cost of advertising. The evaluation of the economic effectiveness of generic fluid milk advertising programs extends beyond the measurement of the direct sales response to advertising. Specifically, the class I-class II price differential and the class I utilization rate are found to be extremely important factors influencing the effectiveness of generic milk advertising programs, while the impact of the price elasticity of supply is relatively minor.

Some Evidence on Weather-Crop-Yield Interaction

Individual risk preferences can have important implications for commodity hedging decisions. Existing literature suggests that when cash and futures positions are treated as endogenous, the optimal hedge ratio is independent of the risk parameter. Under similar conditions we demonstrate that the existence of nonlinear transaction or storage costs makes the decision makers attitude toward risk a relevant determinant of the size of the optimal hedge ratio.

Optimal Portfolios of External Debt in Developing Countries: The Potential Role of Commodity-Linked Bonds

Exchange rate uncertainty can have significant effects on the optimal hedging behavior of offshore commodity traders. In this paper, the standard commodity hedging framework is extended first to incorporate exchange rate uncertainty and second, to forward cover transactions in the foreign exchange market. The implications of exchange rate movements and forward cover decisions for offshore commodity hedgers are illustrated using data relevant to hedging Australian export wheat on the Chicago Board of Trade.

Basis and Exchange Rate Risk in Offshore Futures Trading

The nature of crop yield variation can have significant effects on agricultural price stability. For instance, during periods when grain reserves are low, prices are determined largely by crop yields which, in the short run, are primarily determined by weather. The identification of a systematic relationship between weather and crop yields would have significant implications for agricultural policy. Thus, the purpose of this analysis is to test for the existence of nonrandom corn, soybean, and wheat yields by examining some relationships between climatological events and crop yields. Numerous attempts have been made to assess whether crop yields are random. Twenty-five years ago, Foote and Bean examined U.S. corn yields, finding no evidence of nonrandomness. Sharpies found that corn yields during the increasing half of both the single and the double sunspot cycle were not significantly different from yields during the remainder of the cycle. Luttrell and Gilbert investigated the alternative hypothesis that crop yields are either random, cyclical, or bunchy. Their statistical analysis showed little evidence of nonrandomness for the period 1866 to 1932. For the period after 1932, however, there was evidence of autocorrelation; this was attributed to the uneven adoption of hybrid seed and the uneven application rates of fertilizer.

Forecasting Rail Freight Traffic From A Statewide Economic Model

Much of the spectacular growth in external borrowing by developing countries during the 1970s was in the form of general obligation loans denominated in U.S. dollars at floating interest rates. It is now well understood that this strategy involved substantial risks. An unexpected deterioration in a countrys terms of trade can quickly erode its ability to service large debts. In turn, this may induce restricted access to new external credit and a period of forced adjustment in domestic consumption and investment. These risks have become all