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Commodity hedge for a grocery retailer: Evaluation of financial hedge opportunities for agrocery retail company
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.), Entrepreneurship and innovation.
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.), Entrepreneurship and innovation.
2012 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesisAlternative title
Prissäkring av råvaror inom dagligvaruhandeln : Utvärdering av finansiella prissäkringsmöjligheterför en dagligvaruhandlare (Swedish)
Abstract [en]

Macroeconomic factors have recently led to radical changes in the commodity markets worldwide. This has led to more volatile market conditions, which have affected purchase prices of e.g. grocery retailers. Incentives have thus emerged to review the price risk exposure entailed with commodity purchases. Given a grocery retailer's food assortment, this study has more deeply analyzed a cross-hedging strategy in hope to stabilize purchase prices of sunflower oil. To yield valid results a case study was conducted jointly with a grocery retail company since they could contribute with valuable quantitative and qualitative data. The study shows that soybean oil futures is a suitable instrument for hedging sunflower oil price risk for a grocery retailer even though their complex price risk situation. The effects of using this cross-hedge indicate that reduced standard deviation of the purchase prices between buying points could be yielded. Further, this can lead to more stable margins, despite volatile and uncertain commodity spot prices. Finally, the study evaluates whether these activities should be managed internally or externally. If suppliers can manage the price risk, this would be preferable since they are directly exposed to the risk, which is part of their core business. If the risk cannot be managed externally, internal systems, processes and skills must be reviewed to yield an effective hedge strategy. A concise framework of how to tackle price risk management issues as a grocery retailer is presented at the end of the report.

Abstract [sv]

Makroekonomiska faktorer har på senare tid lett till kraftiga förändringar inom råvarumarknaderna världen över. Detta har lett till en mer volatil marknadssituation vilket påverkat inköpspriser hos bland annat dagligvaruhandlare. Detta har skapat incitament till att se över prisriskexponeringen för råvaruinköpen. Givet en dagligvaruhandlares sortiment har denna studie djupare analyserat en cross-hedge strategi för att kunna stabilisera inköpspriserna på solrosolja. För att ge resultaten tyngd har en case-studie gjorts i samarbete med ett företag aktiv i dagligvaruhandeln då de kunnat bidra med väsentlig kvantitativ och kvalitativ data. Studien visar att sojaolja futures är ett lämpligt finansiellt instrument för att hantera solrosolja-prisrisk för en dagligvaruhandlare trots dess komplexa prisrisk-situation. Effekterna vid användningen av denna cross-hedge indikerar på reducerad standardavvikelse för inköpspriserna mellan inköpspunkterna. Vidare leder detta till att marginalerna kan hållas stabilare, trots volatila råvarupriser. Studiens slutsats utvärderar om dessa aktiviteter skall skötas internt eller externt. Om prisrisken kan hanteras av erantörerna vore detta att föredra då dessa är direkt exponerade av risken samt att denna är en del av deras kärnverksamhet. Om risken inte kan hanteras externt bör interna system, processer och kunskaper ses över för att möjliggöra en effektiv hedgestrategi. I slutet av rapporten presenteras ett enklare ramverk för att besluta huruvida man ska förhålla sig till hanteringen som dagligvaruhandlare.

Place, publisher, year, edition, pages
2012. , 136 p.
Keyword [en]
Grocery retail, commodity price risk, financial hedging, sunflower oil
Keyword [sv]
Dagligvaruhandeln, råvarurisk, finansiell hedging, solrosolja
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:kth:diva-144086OAI: oai:DiVA.org:kth-144086DiVA: diva2:710927
Supervisors
Examiners
Available from: 2014-04-16 Created: 2014-04-08 Last updated: 2014-04-16Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
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