Masters Theses

Date of Award

6-1985

Degree Type

Thesis

Degree Name

Master of Science

Major

Agricultural Economics

Major Professor

Charles B. Sappington

Committee Members

Dan L. McLemore, Glen Whipple

Abstract

The importance of soybeans to producers, processors, exporters and ultimately consumers has been increasing rapidly, pushing soy beans from a botanical curiosity in the 1920's to the second most important cash crop produced in the United States.

Prices play an important role in the industry. Producers, exporters, processors and other businesses related to soybeans and soybean products require accurate and timely information on soybean prices to promote efficient business flow and to allow for long-term planning. This benefits the consumer by providing a steady supply of products at stable prices.

The objectives of this study were:

1. to determine if recent price changes from close to close of November soybean futures can be used to indicate a weak market in the short run and, if so,

2. to determine if the indication of a weak market in the short run also indicates a good time to forward contract for harvest delivery.

Three models with different cutoff criteria of -$1.00, -$.90 . and -$.80 were developed on 1973/1974 through 1981/1982 data. Contract years 1982/1983 and 1983/1984 were preserved to test the models. The independent variables were the changes in the 20 previous daily closes. If the closes decreased in price greater than the cutoff criteria over the next 30 days, then that observation was classified as a sell signal. To avoid placing a hedge on an observation misclassified as a sell signal, a hedge was not placed until five sell signals occurred in a row. Once a hedge had been placed, the success of the three models was analyzed based upon the resulting profit (or loss) per bushel from the time the hedge was placed until the date the hedge was lifted.

For comparative purposes, two possible dates were used for lifting the hedge. The first date was at the time of harvest (assumed to be October 15) and the second was the last day of the contract. Thus it was found, that if the producer hedged using the -$.80 criterion and placed a hedge after five predicted sell signals occurred in succession and lifted the hedge on the last day of the contract's life, his profits per bushel could increase by 53.33^ per bushel over lifting the hedge at the time of harvest (72.33¢- 19¢). Furthermore, if the producer hedged after five predicted sell signals occurred in succession and lifted the hedge on the last day of the contract's life, his profits per bushel could increase 3.16¢ per bushel over the same trading procedure, but using the -$1.00 criterion.

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