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By Cullen Richard Hawes


Value at Risk (VaR) is a relatively new methodology used to quantify risk exposure. Although widely used in the financial and energy sectors of the economy, VaR has yet to gain the same acceptance in the field of agriculture. This thesis provides an introduction to Value at Risk and explains both its strengths and weaknesses. Empirical case studies are developed, and VaR calculation is shown for the unique portfolios of three different agricultural processor situations. The procurement division of a domestic bread baking company is used to empirically demonstrate how VaR could be implemented to evaluate the price risk associated with both the ingredient and energy inputs. A second case considers the same input portfolio; however, the analysis is expanded to include output price risk and show how considering input and output risk simultaneously impacts the risk-reducing effects of numerous hedging strategies. The third case introduces foreign currency exchange risk as VaR is computed for the portfolio of a Mexican flour milling company that purchases its inputs in a foreign currency. iii ACKNOWLEDGMENT

Year: 2003
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