[GRRN] Hedging Commodity Prices

RecycleWorlds (anderson@msn.fullfeed.com)
Wed, 30 Dec 1998 09:12:12 -0600

According to the 12/29/98 Wall Street Journal ("Can Insurers Offer Coverage
for Earnings," by Deborah Lohse, p. A3), the insurance industry, in its
pursuit of new business, is increasingly expanding its coverage of business
offering protection against changes in all revenue and expense items to the
extent that they are effectively providing insurance for earnings.

The relevance for MRF operators is that some companies, like newpaper
publishers such as times Mirror, are now buying this kind of insurance for
the pirce of newsprint. If the company's newsprint cost goes a certain
level above a standard industry index, the insurer will pay at least some
of the excess cost.

This, in essense, is another form of options hedging that is increasingly
being offered to MRF by firms like Enron to protect against wild market
swings in the price paid for scrap materials.

What piqued my interest is that the insurance industry is notorious for
offering high cost products. If they think that they can compete with the
options firms, does that say that the current terms being offered by option
traders to us are also at a hefty premium? Will the competition between
the two industry's for our business bring down the cost of commodity swing

These are the questions that we should begin finding answers to if a
significant number of programs are going to be in the market for some form
of insulation from commodity swings.
Peter Anderson
RecycleWorlds Consulting
4513 Vernon Blvd. Ste. 15
Madison, WI 53705-4964
Phone:(608) 231-1100/Fax: (608) 233-0011

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