Three articles concerning risk management in the meat industry

Dennis Duane DiPietre

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: Formulating strategies to mitigate price risk has become a major concern for meat industry managers. Increased price volatility and the demand for fixed price commitments from large buyers present wholesalers with growing challenges to remaining both competitive and profitable;The first two articles examine cross-hedging as a potential means to hedge price risks for beef and pork products (respectively) which do not have a corresponding futures contract. Hedging ratios are developed using simple linear regression techniques for a variety of commonly purchased meat products. An estimation and description of the basis risk involved in hedging these products is also presented. Finally, examples of typical cross-hedging strategies using the results obtained in each article are developed and discussed;The third article incorporates profit target motives and meat industry manager's feelings regarding deviations from these targets into the formulation of purchasing and inventory strategies. A risk-return model of purchase strategy is developed such that risk is measured with reference to expected outcomes below target, and return is measured with reference to expected outcomes above target.

Date: 1986-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genstf:198601010800008994

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