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Risk Management: Hedging Potential for U.S. Breweries

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  • Prera, Alejandro
  • Fortenbery, T. Randall

Abstract

In this paper we investigate the potential to develop hedging strategies for firms in the U.S. brewing sector. The primary ingredients for beer are hops (grown in many different varieties), grain malt (mostly malted barley but also other grains), wheat, yeast, and water. We test for statistical relationships between hop and barley prices and futures prices wheat, and corn to determine whether price relationships are such that cross hedging hops and barley with existing futures contracts appears feasible. If hops and barley can be effectively hedged then most of the primary inputs used by brewers can be hedged. Using standard multivariate time seriesmodels, we test for stationarity in prices, test for co-integration relationships between the various brewers’ inputs, and report the statistical results. We find the existence of a structural break in the prices associated with beginning of the most recent recession. This created greater instability in commodity prices and a change in their inter-relationships. Insight into these relationships provides relevant information concerning hedging and cross-hedging opportunities for small breweries.

Suggested Citation

  • Prera, Alejandro & Fortenbery, T. Randall, 2016. "Risk Management: Hedging Potential for U.S. Breweries," 2016 Conference, April 18-19, 2016, St. Louis, Missouri 285849, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:n13416:285849
    DOI: 10.22004/ag.econ.285849
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    References listed on IDEAS

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