Comparison of Hedging Cost with Other Variable Input Costs
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Recent spikes in commodity prices
have led to higher margin amounts
and option premiums. For the most
part, producers have always
attributed their lack of use in
reducing risk via futures and options
markets to the high cost associated
with the use of these markets. This
study determines the relative costs of
hedging with futures and options
and compares these with the costs of
other variable inputs. We find that
with the exception of hedging corn
with both tools and soybeans with
options the costs of hedging has
increased at roughly the same rate as
all other inputs.