Futures spread risk in soybean multiyear hedge-to-arrive contracts

Analysis of the futures spread risk involved in soybean multiyear hedge-to-arrive (HTA) contracts provides a quantitative description of the monetary risks that arise from such contracts. This study examined the old crop-new crop futures price spreads from 1948 to 1997 and related monetary risks that go with making the transition from old crop to new crop futures contracts. Findings revealed that the chance of having a negative old crop-new crop spread is about 75% for all the years covered although a 100% probability was found for the high-price years. Therefore, a multiyear HTA is not a reliable hedge.