The possibility of profitable multiple year pricing using rollover strategies for com and soybeans is identified. Historical futures price distributions are generated for both commodities to determine the probability of prices reaching certain levels. The upper 5%, 10%, and 15% of the distributions are determined. Price forecasting models are developed to help producers anticipate high price levels before they occur. Seven different multiple year strategies containing various combinations of cash, futures, and options contracts are established and six different strategy rules are tested. A total of fifty strategies are then evaluated for each commodity over the 1980-1992 time period.
Mean net prices and standard deviations are calculated and the highest return strategies are identified. The strategies are then analyzed based on the two largest risks associated with long-term rollovers: margin calls and spread risk. The tradeoffs between risk and return for the various combinations of cash, futures, and options contracts is discussed. The highest return strategy for both com and soybeans involves selling three years of production when prices reach the upper 5% of the historical distribution, using cash contracts to price the first year's production and futures contracts to price the final two. Substituting options contracts for futures in the final two years results in a strategy void of margin call risk, but subject to increased spread risk. For com, a strategy that does not carry the risk of margin calls receives 93.7% of the high return strategy, while for soybeans this percentage is 98.3. / Master of Science
| Identifer | oai:union.ndltd.org:VTETD/oai:vtechworks.lib.vt.edu:10919/43353 |
| Date | 16 June 2009 |
| Creators | Beckman, Charles V. |
| Contributors | Agricultural and Applied Economics, Kenyon, David E., Purcell, Wayne D., Jones, Eluned C. |
| Publisher | Virginia Tech |
| Source Sets | Virginia Tech Theses and Dissertation |
| Language | English |
| Detected Language | English |
| Type | Thesis, Text |
| Format | x, 142 leaves, BTD, application/pdf, application/pdf |
| Rights | In Copyright, http://rightsstatements.org/vocab/InC/1.0/ |
| Relation | OCLC# 34416630, LD5655.V855_1995.B375.pdf |
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