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Permanent link (DOI): https://doi.org/10.7939/R3Z60C52C

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An Analysis of Risk and Return in Hog Finishing Open Access

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Author or creator
Novak, Frank
Bauer, Leonard
Dailly, Sally
Melvin, Richard
Additional contributors
Subject/Keyword
risk management
hog producers
Type of item
Report
Language
English
Place
Canada, Alberta
Time
Description
The objectives of this study were to measure returns and the variation in returns for hog finishers in Alberta. From this base, different strategies were assessed as to their ability to reduce the level of price risk faced by producers. The National Tripartite Stabilization Program was reviewed along with hedging strategies using the Chicago Mercantile Exchange Live Hogs futures. Risk was measured using the Mean Square Error (MSE) and the Capital Asset Pricing Model (CAPM) beta. A twelve month rolling average of nearby basis was used to predict hog prices. All of the strategies studied, the NTSP, a selective investment model, a 100% hedge and an optimal hedge, reduced risk compared to the base model. The 100% hedge and an optimal hedge, reduced risk compared to the base model. The 100% hedge reduced risk to the greatest extent. The NTSP alone reduced risk and increased returns. When using the Capitol Market Line as a means of measuring the risk return tradeoff, all the strategies provided a viable alternative for risk reduction compared to the base model. The CAPM betas for the various strategies were very low. Hog finishing could provide a diversification opportunity for holders of a market portfolio.
Date created
1992
DOI
doi:10.7939/R3Z60C52C
License information
Creative Commons Attribution-Non-Commercial-No Derivatives 3.0 Unported
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