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    Raising cane: Hedging calamity in Australian sugar

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    Thumbnail
    Name:
    QSL_paper.pdf
    Embargo:
    2024-02-04
    Size:
    2.361Mb
    Format:
    PDF
    Description:
    Final Accepted Manuscript
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    Author
    Carter, Colin A.
    Schaefer, K. Aleks
    Scheitrum, Daniel
    Affiliation
    Department of Agricultural and Resource Economics, University of Arizona
    Issue Date
    2021-02-04
    Keywords
    Environmental risk
    Optimal hedge ratio
    Queensland sugar limited
    Risk management
    Sugar
    
    Metadata
    Show full item record
    Publisher
    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 Markets
    Rights
    © 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 2021
    ISSN
    2405-8513
    DOI
    10.1016/j.jcomm.2020.100126
    Version
    Final accepted manuscript
    ae974a485f413a2113503eed53cd6c53
    10.1016/j.jcomm.2020.100126
    Scopus Count
    Collections
    UA Faculty Publications

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