Hedging and Contracting: Risk Management in the Broiler Industry

Revision with unchanged content. The three essays in this study evaluate alternative risk management strategies in the broiler industry - contract production and broiler futures. Contract production is the dominant form of risk management in today's broiler industry. Over the last decade and a half, contract payment mechanisms were changed to include part of the market price of broilers. While this increased the risk borne by broiler growers, it was found that their welfare also increased. Broiler futures have been intermittently offered during the past four decades. This study investigates the reasons behind their repeated failure. This study finds that broiler futures failed because they were an ineffective hedging tool. Using actual production data, it is found that hedging with broiler futures would not have significantly reduced risk. The book is addressed to those interested in risk management strategies. It is also directed towards those interested in the poultry industry in general and specifically in a historical perspective of the changes in the industry.