| Abstract: | The purpose of this study was to determine if cross-hedging grain sorghum on corn futures contracts could reduce price variation to an individual grain sorghum producer. Weekly cash grain sorghum prices and cash corn prices for the Texas High Plains and closing corn futures prices were collected for the years 1971-1979. The relationship between cash corn prices and cash grain sorghum prices was statistically estimated. Nine arbitrary cross-hedging strategies were formulated for grain sorghum. The hedging strategies were evaluated using a mean/variance analysis, hedging performance, the concept of the minimum risk hedge, and risk shifting effectiveness of the minimum risk hedge. A strong relationship existed between cash grain sorghum prices and cash corn prices during 1971-1979. Some significant seasonality effects were found in grain sorghum prices. One cross-hedging strategy was more successful than the other eight strategies. The same strategy was found to be at least equal to or better than a postharvest cash sale |
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