EVALUATING ALTERNATIVE CROPS FROM A MARKETING PERSPECTIVE - THE CASE OF CANOLA

The purpose of this study is to determine the extent to which canola ( Brassica napus L. var. napus) is distinct from soybeans [Glycine max ( L.) Merr.] from a marketing perspective. If the supply and demand fund amentals of canola are closely related to those affecting the soybean complex then, from a marketing standpoint, the two crops are substitut es because canola producers and merchandisers can employ marketing str ategies similar to those for soybeans. The degree to which canola and soybeans are similarly affected by market fundamentals is measured her e by conventional hedging effectiveness analyses. Relationships betwee n canola prices and soybean, soybean oil, and soybean meal futures pri ces are estimated to determine whether soybean futures markets can be effectively used to cross-hedge canola price risk. The level of hedgin g effectiveness is directly related to the extent to which canola and soybeans are substitutes from a marketing perspective. Short term hedg es of canola in the soybean complex are less effective than longer hed ges, but the remaining price uncertainty is considerably less for shor t term hedges than for longer hedges. Canola merchandisers should ther efore view canola as a distinct, perhaps alternative, commodity from a marketing perspective. It is not clear whether there are systematic o pportunities for selectively timing cross-hedges of canola in the soyb ean complex. The approach employed in this study can be used to evalua te other alternative crops from a marketing perspective.