week 3 case

ACCT 540

Course Project: Week 3 (Case 1)

I have been hired by Thomas Foods to design and implement a hedging strategy that will help to insulate the company from the risks that are associated with purchasing harvested crops from local crops. Some of the key terms I should use to help facilitate my research process are weather and/ or natural disasters, operating income, and supply and demand. Obviously, when it comes to doing business with farmers and their crops, the weather and/ or natural disasters can have a major impact on the prices of the crops, which can significantly help or harm Thomas Foods’ relationship with their suppliers. Another key term to keep in mind throughout my research process is “operating income,” and its relationship with hedging strategies. It would be beneficial for me to design several hedging strategies, and analyze them to see which strategy would pose the least amount of risk, and result in the highest possible net income. I could also research the relationship between hedging strategies and operating income for companies that have had similar circumstances in the past. Lastly, I should research the phrase “supply and demand” and how it relates to the farmers that harvest crops near Thomas Foods; this will help the company to determine the depth of the hedging strategy they will adopt because risks of price increases may not be so high if there are many farmers in the area with a surplus of the desired crops.