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

Leigh Maynard

Journal of Food Distribution Research, 2009, vol. 40, issue 01, 16

Abstract: 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.

Keywords: Agribusiness; Livestock Production/Industries (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:ags:jlofdr:162128

DOI: 10.22004/ag.econ.162128

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