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Case Study - QSR - Pork - Cost Rise - Basis Risk - Liquidity

Pork Price Protection Program

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Overview

Stable worked with a QSR client
to manage pork price volatility

A global Quick Service Restaurant (QSR) worked with Stable to protect themselves against pork trim price volatility - a risk they had never before been able to manage effectively.
The Challenge

Pork trim is a key ingredient for many
of the menu items sold by Stable’s QSR client

But pork trim price volatility was 64% over the past year, making it difficult to forecast prices and complicated to set budgets and plan for the future. Pork futures contracts lack the liquidity to make them useful, and Stable’s client found that existing futures were not highly correlated with their underlying exposures. This meant that even if they were able to find liquidity, they’d be exposed to basis risk through an inefficient hedge.
Stable’s
Solution

Stable’s Program gave them 12 months
of protection against rising pork trim prices

The protection was directly linked to robust and independent USDA price data, so when market prices moved against the client, Stable paid them quickly and automatically, without the need for a lengthy claims process. Stable’s solution smoothed the volatility of the cost of pork trim, protected the client from a worst-case scenario and gave them peace of mind so they could focus on their business.
Conclusion

Stable’s program allowed the client 
to manage exposure to pork trim price volatility with
an innovative and targeted solution that zeroed in on
their precise exposure

  • When pork trim prices rose, the client’s settlement was calculated automatically and paid quickly.
  • Stable’s protection contract was linked to a third party, independently published benchmark price 
selected by the client.
  • The client was able to choose protection levels which made sense for their business.
  • The protection contract, like all of Stable’s products, was backed by highly rated insurance companies.
Pork trim price volatility has been calculated using the 42% Trim Combo price published
by the USDA in the National Weekly Negotiated Pork Report from Aug-22 to Aug-23.

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