BS in Dairy Science
Dairy Science Department
The objective of this project was to determine if cash purchased supreme alfalfa hay in Tulare, CA could be cross-hedged by dairy farmers with a single commodity that is exchanged on the board in order to manage the volatility of alfalfa prices. The first objective was to find commodities that are traded on the board that could potentially be used to cross-hedge cash purchased or grown alfalfa. Three commodities that are similar to alfalfa were selected. The commodities were soybeans, soybean meal, and No. 2 yellow corn. The fourth commodity used was crude oil because fuel is a large cost in the farming of alfalfa. Monthly average futures contract prices and monthly average cash prices of all of the commodities were found from 2005 to 2013. The monthly average cash prices paid to farmers in California and the U.S., the monthly average cash prices paid for alfalfa in the U.S., and the monthly average cash prices paid for delivered supreme alfalfa in Tulare, California were all gathered. The data was analyzed to see if the price variance of supreme alfalfa in Tulare, CA has a strong relationship to the commodities price fluctuations. The study determined that cash purchased supreme alfalfa hay in Tulare, CA cannot be cross-hedged with a single commodity that is exchanged on the board because it did not have a significant relationship to the commodities used in the test.