Dalio: Designed the commodity hedging strategy behind McDonald's Chicken McNugget launch
Ray Dalio · a16z Podcast | Principles and Algorithms for Work and Life · Jan 2, 2019 · at 1:49
Ray Dalio, founder of Bridgewater Associates, explains how he structured a commodity futures hedge using corn and soybean meal to help chicken producers lock in fixed-price forward contracts for McDonald's McNugget release.
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“I contributed to the economic risk of being able to come out with a Chicken McNugget. Because it came out at a time when there was a lot of commodity price volatility, and McDonald's wanted to come out with a chicken McNugget, but they couldn't lock in a price. They couldn't guarantee that, because the producers of the chicken wouldn't be able to contract forward those prices, because their costs were going up. But I figured out that, by the way, this is in the old days of trading commodities and so on, and mechanics of it were That there's a little chicken. It doesn't cost much money, and what really costs the money is the feed, which is mostly corn and soybean meal, and so there is a futures market in that, so I went to the chicken-making client that I had at the time and McDonald's, and I was told the chicken-making client that they could put on these particular hedges so that they could sell a forward contract of that chicken at a fixed price to McDonald's, So McDonald's could come out and have a fixed price and wouldn't have that price risk.”
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