# United grain grower case

The R-squared indicates that about 68 percent of the annual variation in Alberta wheat yields is explained by these three variables.

The negative and statistically significant coefficient on the average June temperature variable indicates that wheat yields in Alberta are negatively related to the average June temperature.

This approach is much more comprehensive than traditional risk management practice, where different types of risk are managed by different people using different tools.

By selecting specific questions for students to answer, you can tailor the case to your specific needs and desires. We have written the case to give the instructor flexibility in choosing the topics and analysis that will be covered.

Thus, for a given crop and province, a weather index can be constructed using the coefficients in the regression results. UGG chose the insurance contract alternative.

Hedging their weather risk with derivatives was feasible, but it suffered from several dif- ficulties. Modigliani, F. Insurance Contract: Another option that UGG has to manage its risk is to purchase an insurance contract for grain For example, they purchased a variety of policies to cover their property exposures e.

To illustrate the results, consider the first row of Table 5.

### United grain grower case

The analysis was conducted using data from to for the provinces of Alberta, Manitoba, and Saskatchewan. Reading the case will illustrate to students the sophistication of modern risk management and expose them to ideas of enterprise risk management, which sug- gests that firms should evaluate all of their risk exposures pure risks, price risks, and operational risks using a common framework. Thus, for a given crop and province, a weather index can be constructed using the coefficients in the regression results. Although UGG provides numerous services to farmers in western Canada, its main source of revenue is grain shipments. Note that since the regression coefficients vary across crops within a given province and across provinces, UGG might need a separate contract for each crop and each province. The exhibit also indicates that the three variables in the regression equation explain a substantial proportion of the variability in yields in all of the provinces, i. If the strike were set equal to the expected or predicted value of the underlying index, then the weather derivative would provide protection against crop yields that are lower than expected. The authors also acknowledge the insightful research assistance from Tae Ho and the helpful comments from Mary Kelly. However, it is probably better to hedge gross profit than revenue, because some costs are variable.

Their graph is reproduced as Figure 6.

Rated 7/10
based on 65 review

Download