Hedging Short-term Corn Price Risks In Tokyo versus Chicago's Project A

Abstract

This study investigates whether U.S. corn merchants can effectively manage the overnight price risk of cash corn purchased after the Chicago Board of Trade closes at 1:15 p.m. on either the electronic Project A market or in the corn contract traded on the Tokyo Grain Exchange. Three scenarios are examined: 1) overnight hedges; 2) day-to-day hedges; and 3) two-day hedges. Overnight hedges are the least effective of the three scenarios on both markets. E-hedging on Project A is more effective than hedging in Tokyo, yet trading of corn futures contracts on Project A remains relatively thin and illiquid. Steps need to be taken to encourage more trading of this contract.