Name:
QSL_paper.pdf
Embargo:
2024-02-04
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2.361Mb
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PDF
Description:
Final Accepted Manuscript
Affiliation
Department of Agricultural and Resource Economics, University of ArizonaIssue Date
2021-02-04
Metadata
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Elsevier B.V.Citation
Carter, C. A., Schaefer, K. A., & Scheitrum, D. (2020). Raising cane: Hedging calamity in Australian sugar. Journal of Commodity Markets, 100126.Journal
Journal of Commodity MarketsRights
© 2020 Elsevier B.V. All rights reserved.Collection Information
This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at repository@u.library.arizona.edu.Abstract
This paper evaluates an instance of large-scale hedging misfortune in the Australian sugar industry. A single corporation, known as Queensland Sugar Limited (QSL), was responsible for selling the entire volume of sugar exported from Australia. In 2010, QSL incurred over $100 million (2010 AUD) in hedging losses when harvest volumes were below expectations due to heavy La Niña rainfall. Sugar prices rose, and QSL was over-hedged. We quantify the price and production risks faced by Queensland sugar millers, using data that was available at the time. Based on these estimates, we calibrate a mean-variance hedging model to determine QSL's optimal pre-harvest commitment of sugar. We find that QSL should have pre-committed no more than 51% of its expected supply prior to harvest. Under this strategy, QSL would have incurred zero hedging losses in 2010. Speculation by QSL came at the great peril of the Australian sugar growers. © 2020 Elsevier B.V.Note
36 month embargo; first published online 4 February 2021ISSN
2405-8513Version
Final accepted manuscriptae974a485f413a2113503eed53cd6c53
10.1016/j.jcomm.2020.100126