Title page for ETD etd-08012012-040135

Type of Document Master's Thesis
Author Shapiro, Neil Philip
URN etd-08012012-040135
Title An analysis of profit margin hedging strategies in the broiler industry.
Degree Master of Science
Department Agricultural Economics
Advisory Committee
Advisor Name Title
Kenyon, David E. Committee Chair
Luckham, W. R. Committee Member
Weaver, William D. Jr. Committee Member
  • Hedging
  • Poultry production
Date of Defense 1976-10-15
Availability restricted
The focus of this study on hedging strategies differs from previous

studies in four major ways: l) both costs and selling price are

simultaneously hedged, 2) profit margins are computed daily for up to

nine months into the future, 3) hedges can be placed five to six

months in advance of production, and 4) production costs and profit

margins are computed on a weekly basis.

Weekly RTC iced broiler production costs were estimated using

weekly changes in corn and meal prices and monthly changes in other

feed costs, processing costs, transportation and offal value. Weekly

production costs were compared to weekly N.Y.C. wholesale broiler

prices to determine profit margins. These estimated weekly profit

margins served as a benchmark for evaluating alternative hedging


Expected future monthly net profit margins (ENPM) using futures

prices and basis estimates for corn, meal, and iced broilers were estimated

daily using the production cost formula. The daily ENPM were

analyzed to determine their ability to forecast actual profit margins.

The ENPM's were poor predictors of actual profit margins. They

demonstrated seasonal biases and substantial over and under estimation of actual margins. Forecasted and actual profit margins varied

inversely, so positive profit margins were locked in, while negative

profit margins were not.

Five hedging strategies were developed based on the relationship

discovered between expected and actual profit margins. Over the time

period 1970-1975, these strategies doubled profit margins and cut

profit margin variation substantially.

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