Hedging the fishy fishmeal prices : an investigation into the viability of a potential fishmeal futures contract
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- Master Thesis 
Salmon futures contracts have existed for more than a decade, and futures contracts for aquaculture feed ingredients such as corn, soybean meal and wheat have existed much longer. Fishmeal is also a key feed ingredient, and its industry has been argued to be one of the most volatile business environments of the food sector. Yet, efforts to establish a futures contract for fishmeal have not been seen. This thesis investigates the viability of a potential fishmeal futures contract, based on success factors for futures contracts identified by the literature. To do so, we conduct both quantitative and qualitative analysis. We utilise data on fishmeal prices and production statistics, in addition to prices and trading volumes of soybean meal and corn futures, between 2005 and 2017. The quantitative analysis consists of two separate approaches. First, we conduct a cointegration analysis to investigate whether fishmeal is homogenous and whether it has one or more markets. Second, as a proxy for futures contract success, we apply an empirical model developed by Bekkerman and Tejeda (2017) to predict the probability of a fishmeal futures contract already existing. To obtain estimates for variables included in this model, we conduct a survey of industry experts on fishmeal, in addition to empirically estimate and collect measures. The qualitative analysis takes into consideration the quantitative results and provides a thorough, more nuanced discussion of the viability of a fishmeal futures contract. The cointegration analysis indicates the existence of one fishmeal submarket in the Nordics and one in South America, and that fishmeal may be homogenous only within these submarkets. The model of Bekkerman and Tejeda (2017) predicts a zero percent probability of a fishmeal futures contract already existing. The qualitative analysis reveals that price risk, homogeneity, market size, storability, and lack of relevant and efficient cross-hedging alternatives speak in favour of the viability of a fishmeal futures contract. Optimal contract design can somewhat overcome identified issues, but the existence of market power, vertical integration and lack of transparency are assessed to outweigh the favourable characteristics. Therefore, we conclude that a fishmeal futures contract, under current market conditions, is not viable.