Research Conducted at University of Extremadura Has Updated Our Knowledge about Risk Management (Feed Price Risk Management for Sheep Production In Spain: a Composite Future Cross-hedging Strategy): Risk Management

2022 FEB 01 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- Researchers detail new data in Risk Management. According to news reporting originating in Badajoz, Spain, by NewsRx journalists, research stated, “Extensive livestock farming is a relevant activity in Spain, and lamb production is particularly important in the Autonomous Community of Extremadura, where feed supplementation is the main cost of production. In addition to facing climate risks which increases feed quantity needs, producers are also exposed to exogenous price volatility because feed components are settled in international markets.”

Funders for this research include Junta de Extremadura, FEDER (Fondo Europeo de Desarrollo Regional ‘Una Manera de hacer Europa’), Valhondo Calaff Foundation.

The news reporters obtained a quote from the research from the University of Extremadura, “However, there are no traded futures contracts to directly hedge feed price, raising the question if a composite hedge can be used. With that aim, this paper tests different cross-hedging strategies with feed components that have contracts traded in international markets such as corn, soybean meal, wheat, and others. Employing a multi-regression model that solves the expected mean-variance utility problem maximization under the assumption of risk aversion, up to 65% of feed price risk can be hedged by constructing a cross hedge.”

According to the news reporters, the research concluded: “Putting the strategy into practice showed that using the proposed hedge during 2012-2020 reduced price volatility and reported a benefit of euro 27,498.61 in a representative farm, equivalent to 7.6% of period’s total feed expenditure.”

This research has been peer-reviewed.

For more information on this research see: Feed Price Risk Management for Sheep Production In Spain: a Composite Future Cross-hedging Strategy. Risk Management, 2022. Risk Management can be contacted at: Palgrave Macmillan Ltd, Brunel Rd Bldg, Houndmills, Basingstoke RG21 6XS, Hants, England.

Our news correspondents report that additional information may be obtained by contacting Ismael Perez-Franco, University of Extremadura, Faculty of Economics and Business Science, Av Elvas S-N, Badajoz 06006, Spain. Additional authors for this research include Agustin Garcia-Garcia, Esteban Otto Thomasz and Gonzalo Rondinone.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1057/s41283-021-00088-1. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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