Price hedging in salmon farming : is price hedging a viable, profit inducing option for salmon farming companies?

Abstract

The objective of this thesis is to analyze whether price hedging is a viable option for salmon farming companies, and the effect hedging might have on profitability opportunities facing the companies on a year round basis. The desired result from this thesis is to present a statistical and economical evaluation of the effects of hedging on the main constraint standing in the way of profitability, which is lackluster price achievement faced within the industry. The hypothesis put forward is that price hedging will improve profitability for salmon farming companies and can lower the sustained periods of non-profit achievable price levels as well as minimize the cash flow risk associated with selling on the volatile spot market. Additionally, it was noted that a future price agreement between the buyers and suppliers based on a fixed price structure as well as some sort of incentive based on quantities executed on the contract could provide a mutually beneficial result between the buyers and suppliers. The results generated from a hypothetical hedging scenario put forward in this thesis prevailed evidence that hedging salmon prices provides a safer environment for salmon farming companies to operate within that facilitates growth and creates grounds for more stable profits. Furthermore, the hypothetical hedging scenario signifies the importance of stable prices within the industry in general, due to the capital intensive cost structure and nature of the industry.