Optimal Hedging Strategies for Early-Planted Soybeans in the South

Soybean production in the South has evolved over recent years from conventional soybean production systems (CSPS) in which soybeans are planted after May 1st to early soybean production systems (ESPS) in which soybeans are planted as early as mid-March. The shift was aided by the advent of herbicide-tolerant genetically modified soybeans and a shift toward minimum or no-till seedbed preparation. The ESPS provide an advantage over the CSPS by allowing the crop to surpass critical growth stages before encountering significant environmental, pest, or disease pressure. The CSPS harvest date only allows for hedging on the November contract, but the ESPS harvest date is generally before September, allowing the producer to hedge on the September contract. Little research has been completed to study the optimal hedge ratios of ESPS. The model presented in this paper will be used to determine the optimal hedge ratios for ESPS and CSPS while accounting for production risk and transaction cost.