Mexican White Corn Spot Price Hedging with US Agricultural Futures Portfolios Using the Surplus Efficient Frontier

This paper addresses the lack of hedging effectiveness that yellow corn 1-month futures of the Chicago Mercantile Exchange (CME) offer for cross-hedging the price of Mexican white corn. For this purpose, the authors tested 1013 combinations (portfolios) of the ten most traded futures on the CME and the New York Mercantile Exchange (NYMEX). The results suggest that using a 51.6741% corn and a 48.3259% wheat portfolio mimics the white corn price with a hedging effectiveness of 0.6180. To test the practical use of such a portfolio, the authors backtested its use from 1 January 2000 to 9 February 2025 as a balancing short position for sale of white corn at t + 1. By using the corn–wheat portfolio, the simulated seller (farmer or intermediary) would have earned MXN 5.7664 per kilo traded. The results in this paper provide the first solution to the Mexican white corn cross-hedging problem with a futures portfolio. This hedge can be used as the balancing (short) position for the strike or minimum buy price that the Mexican Government or a financial institution could offer to farmers and intermediaries to enhance food security.