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Pre-Harvest Pricing Strategies in Ohio Corn Markets: Their Effect on Returns and Cash Flow

Published online by Cambridge University Press:  28 April 2015

Carl R. Zulauf ,
Donald W. Larson ,
Christopher K. Alexander  and
Scott H. Irwin
Carl R. Zulauf
Affiliation:
Department of Agricultural, Environmental, and Development Economics, the Ohio State University, Columbus, Ohio
Donald W. Larson
Affiliation:
Department of Agricultural, Environmental, and Development Economics, the Ohio State University, Columbus, Ohio
Christopher K. Alexander
Affiliation:
Ag Credit (ACA)
Scott H. Irwin
Affiliation:
Department of Agricultural and Consumer Economics, University of Illinois, Champaign- Urbana, Ilinois
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Abstract

This paper contributes to the debate on whether pre-harvest pricing strategies can improve returns over cash sales at harvest. It also examines cash flow needs of such strategies. The analysis is conducted for Ohio corn produced from 1986 through 1999. The pre-harvest strategies evaluated (short futures, long put, synthetic long put, put-call fence) did not statistically improve returns over cash sales at harvest. However, if implemented during or before planting, these naïve strategies reduced the standard deviation of annual gross income. Substantial cash flow may be incurred, either to establish the strategy or meet margin calls. Therefore, assessments of pre-harvest pricing strategies should include cash flow needs, along with return and risk.

Keywords

cash flow riskpre-harvest pricing strategiesprice risk
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 33 , Issue 1 , April 2001 , pp. 103 - 115
Copyright
Copyright © Southern Agricultural Economics Association 2001

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