CORN PRICE IS FALLING; THE FEED COMPANY PROFIT VERSUS THE INDONESIA SELF-SUFFICIENCY POLICY
Asaduddin Abdullah, Idqan Fahmi, Dikky Indrawan
School of Business IPB University (Bogor Agricultural University), Jl. Raya Pajajaran, Babakan, Bogor Tengah, 16128, Indonesia
Abstract
The price of corn is falling and the global chain feed company were maximizing their profit by a hedging strategy. Even though the corn price was believed to rise by nearly 25% above current levels by the end of this year, its uncertainty was high due to many feed companies was unsure if the price had touched the bottom. Therefore, the hedging strategy will not guarantee positive outcomes. This study used two Indonesia Listed feed company and their performance in hedging strategies. We employed simulation model to analyze the corn price. The results illustrate various corn price impacts on the feed company profit based on their cost-benefit structure. The study shows that the hedging strategy gave a profitable impact if the corn price was ranging between $ 3.50 to $ 3.70. While if the price stable at $ 4.00 in three consecutive weeks then the hedging policy should be considered the new price in combination with a proper inventory policy in order to maintain a higher profit. In the other hand the Indonesian government also has the policy to achieve self-sufficient corn production, but with the corn price is falling the government facing difficulties to fulfil. This concludes that the hedging policy should be evaluated from time to time to ensure its impact on the company in the global value chain.
Keywords: Global trade, Corn Commodity Price, Hedging Strategy, Simulation Scenario
Topic: Business Strategies on GVC Participation