MULTIPRODUCT HEDGING FOR HOG FARMERS AND MEAT PACKERS

This paper analyzes the optimal hedging strategies of hog fanners and meat packers who have both input and output price risks. Multiproduct hedge models, proportional hedge models, and single-commodity hedge models are applied to the feeder-to-finish and the farrow-to-finish enterprises of the U.S. (national) and Pennsylvania (local) data sets. The hedge ratios for different scenarios are estimated and compared. Finally, an approach of hypothesis tests is used to evaluate the performances of different hedging strategies. The results shows that the multiproduct hedging strategy is optimal for most of cases.