One of the greatest challenges facing agricultural producers this year is the ever-shifting price of commodities.
To help farmers, agribusinesses and brokers reduce commodity price risks while making timely decisions about purchasing inputs and marketing output, the University of Arizona has licensed a commodity price-risk management web application to Tucson startup company HedgeSmart LLC.
"If a producer or processor sees a current price that he/she would like to 'lock in,' HedgeSmart shows how to do this based on historic relationships between cash and futures prices. The past may not exactly replicate itself, so there is some risk, but HedgeSmart minimizes this risk," said Roger Dahlgran, a UA associate professor in the Department of Agricultural and Resource Economics housed within the College of Agriculture and Life Sciences, the system's creator.
Underpinning the HedgeSmart web application is a database of daily futures and cash prices that Dahlgran has compiled over the past 25 years.
The system selectively queries, combines and analyzes this information to provide price-risk minimizing hedging recommendations. It offers each user flexibility in modeling business operations and planning and production horizons, as well as in selecting the futures contracts to be used for hedging.
"The kind of research needed to develop informed decisions is highly complex and can take a lot of time if done manually," says Vivek Kumar, co-founder of the company and an alumnus of the UA and the Eller College of Management. "HedgeSmart reduces that time to less than an hour and helps in automating the computation of hedge ratios for wide variety of hedging situations."
The core technology may have several more applications at the crossroads of big data and data-driven decision making, Kumar said.
Tech Launch Arizona, the office of the UA that commercializes inventions stemming from UA research, facilitated the process of defining, protecting and licensing the intellectual property in the web application, and also provided guidance in the formation of the company and ultimately licensed the web application to HedgeSmart.
Lewis Humphreys, the IT licensing manager for TLA, says, "HedgeSmart is a great example of how Tech Launch Arizona can help UA faculty find ways to take their research and know-how and transfer it into a commercial product and company."