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An Analysis of Delivery-Period Basis Determination for Live Cattle*

Published online by Cambridge University Press:  28 April 2015

William Vollink  and
Ronald Raikes
William Vollink
Affiliation:
Economics Department, Iowa State University and Farm Bank Services, Inc., Omaha, Nebraska
Ronald Raikes
Affiliation:
Department of Economics, Iowa State University
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Extract

Because level and variability of the basis at the time a hedge is lifted affects level and variability of returns from hedging [1, 4], an understanding of the determination of basis values is important both to hedgers and to those with regulatory responsibilities. This analysis focuses on the determination of par-delivery-point basis values during the delivery period of a live-cattle futures contract; i.e., on determination of the difference between futures price and cash price for a lot of live cattle that meets all futures contract specifications (including place and time of delivery). Results of the analysis suggest that, during the delivery period, par-delivery-point basis values for live cattle frequently differ from zero by more than the transaction costs associated with arbitrage, and that fluctuations in basis values may be partly explained by trader expectations and by risk associated with returns to arbitrage.

Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 9 , Issue 1 , July 1977 , pp. 179 - 184
Copyright
Copyright © Southern Agricultural Economics Association 1977

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Footnotes

*

Journal Paper No. J-8756 of the Iowa Agriculture and Home Economics Experiment Station, Ames, Iowa. Project No. 1978

References

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