Financial Analysis and Hedging Strategy Analysis of Associated British Foods

Abstract

A multinational food company may have to face various risks from its supply chain or other aspects. Hedging strategies by using financial derivatives such as futures contracts are useful for such companies to reduce their risks. This paper aims to make proposals for Associated British Foods (ABF) to reduce its risks by using the future contracts and options of its raw materials. Based on the analysis of the background and financial situation of ABF, it is suggested that future contracts of wheat and other raw materials and their options can be hedged. Long call, short call, bull spread, and bear spread are analyzed respectively based on the latest market data. The paper only takes one example of CHICAGO SRW WHEAT (ZWU2), but it is suggested that a number of related commodities can be hedged in similar methods.