Hedging Pork Products Using Live Hog Futures: A Feasibility Analysis

The increased volatility of commodity market prices in the 1970\u27s and early 1980^s has sharply increased the risks associated with commodity procurement and inventory management in most food processing and distribution firms. Many firms dealing in commodities which have futures markets can use the futures markets as procurement or inventory management tools, but many commodities have no viable futures market. For example, most wholesale meat products (with the exception of pork bellies, boneless beef, and iced broilers) are traded only on cash markets, so hedging pork loins, hams, and most other beef and pork products cannot be done in a directly comparable futures market..

Transforming Commodity Animal Agriculture : How Easy?

Relentless technological change and intermediate market failure are re-shaping the supply chain for fresh meat. Investment over the last twenty years has primarily been in fixed assets that lower the shutdown price point and lead to structuralized overproduction of commodities. To avoid the non-sustainable approach of a single minded strategy focused on cost reduction, firms are focusing on value-added and branding approaches which present problems with search costs and supply risk. A coordination phase is emerging where firms are experimenting with both contractual and integrated approaches to acquire large supplies of raw materials that support branding attributes. Information sharing is crucial to overcome these problems but oligopoly competitors resist it due to the potential for competitive disadvantage. A new supply chain is beginning to emerge, focused on consumer demand but its implementation is proceeding slowly.Includes bibliographical referenc

Farm business management

xii, 442 hal; 26 c

HEDGING PORK PRODUCTS USING LIVE HOG FUTURES: A FEASIBILITY ANALYSIS

The feasibility of hedging ten wholesale pork products using the live hog futures market was analyzed, and appropriate hedging relationships were estimated using 1970-79 data. Depending upon a firm's risk aversion, the live hog futures market could be a useful risk management tool for meat processors and merchandisers dealing with pork products