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Bob Evans Farms, Inc. Message Board

  • tedqwert1 tedqwert1 Feb 20, 1998 9:23 AM Flag

    Question for Stewart about hedging

    I was wondering if Bob Evans engages in any active hedging of its exposure to hog prices? It seems that the earnings problems last year were largely caused by surging hog prices, which could have been hedged in the futures market. Given this past problem, is there any plan to look into this strategy in the future?

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    • The primary reason we do not use hedging is that none of our competitors do it, and we would be out of step with them in the
      marketplace. That would be fine when you are on the right side of that equation, but would be a real problem if you were on the other
      side. An example would be right now. Hog prices dropped further and faster than we thought they would, and if we had locked in hog
      costs six months ago at the futures prices at that time, we would have a substantially higher cost of goods sold than anybody else
      right now. We'd rather compete on a level playing field. I did try hedging close to 15 years ago, and learned an expensive lesson
      very quickly.

      Someone emailed me at the office and asked me to post a response to his question on this board. He was inquiring about our
      implementing a frequent diner program, which is know as an affinity program in the marketing world. We have discussed it and looked into
      various ways to structure one. They are very expensive to set up and maintain, and you need to have some significant uses for them
      from a company standpoint to make them worthwhile. We are continuing to study this and you may see us do one at some point.
      Stewart O.

 
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