Feasibility of Hedging Milk Input Costs for a Dairy Processor: A Case Study

This case study evaluates milk input price-risk management strategies for a processor of refrigerated dairy products. The firm perceives price risk both when milk costs are over budget and when budgets are too conservative. Price-forecast­ ing models produced mean absolute percentage errors of sic to nine percent. Ina 2000-2008 simulation, hedging with Class ID milk futures reduced the variance of budget deviations by only 31 percent, while hedging with call options produced a similar cost profile with more predictable cash-flow requirements. Recommendations include using the price-forecasting models to improve budgeting accuracy but delaying the launch of a hedging program.


Issue Date:
2009-03
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/162128
Published in:
Journal of Food Distribution Research, Volume 40, Number 1
Page range:
123-138
Total Pages:
16




 Record created 2017-04-01, last modified 2017-08-27

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)