Multi-commodity price risk hedging in the Atlantic salmon farming industry
Cost management has received limited attention in the aquaculture industry due to historically high profit margins. This trend, however, is not likely to continue. This creates a need for knowledge on optimally managing financial risks. In this study, we address the joint input-output price hedging...
| Published in: | Journal of Commodity Markets |
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| Main Authors: | , , , |
| Format: | Article in Journal/Newspaper |
| Language: | English |
| Published: |
Elsevier
2021
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| Subjects: | |
| Online Access: | https://hdl.handle.net/11250/2735989 https://doi.org/10.1016/j.jcomm.2021.100182 |
| Summary: | Cost management has received limited attention in the aquaculture industry due to historically high profit margins. This trend, however, is not likely to continue. This creates a need for knowledge on optimally managing financial risks. In this study, we address the joint input-output price hedging problem of salmon farmers. Along with salmon, we consider three essential commodities used in fish feed mixtures. We use state-of-the-art copula models to examine multi-commodity hedging strategies. Our results show significant potential in reducing the joint price risk. Our key finding is that multi-commodity hedging improves hedging effectiveness for short horizons and risk-return trade-off for longer horizons. Salmon farmers face a trade-off where longer hedging horizons yield increased effectiveness and lower costs, yet require increased pre-planning of slaughtering volumes. publishedVersion © 2021 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/) |
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