Hedging a government entitlement: the case of countercyclical payments.

摘要

This study examines whether the introduction of countercyclical payments (CCP) creates an incentive for programme crop producers to hedge the expected government payment using futures and/or options. Some level of countercyclical payment hedging is optimal for risk-averse decision makers. However, optimal hedge ratios depend on planting time expectations of marketing year average price as well as on what crop, if any, has been planted on countercyclical payment base acres. Furthermore, the level of hedging that is optimal for most producers is probably less than is currently being advised. When the base crop is planted on base acres, any significant level of CCP hedging makes little sense. In conclusion, producers should be wary of marketing strategies involving CCP hedges.