Inventory and Transformation Hedging Effectiveness in Corn Crushing
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Recently developed ethanol futures contracts now allow direct-hedging by ethanol producers. This study examines the effectiveness of one-through eight-week hedges between 2005 and 2008. Our findings show (a) ethanol inventory hedging effectiveness is significant for two-week and longer hedges, and increases with the hedging
horizon; (b) ethanol futures are significantly superior to gasoline futures for hedging
ethanol price risk for two-week and longer hedges; (c) the corn crushing hedge,
utilizing corn and ethanol futures, is effective and provides price risk management capabilities comparable to those provided by the soybean crush hedge.