Managing risk in agricultural commodities

Introduction

Combine harvesting corn on autumn afternoon

But, despite this relentless focus on bad news, many public and private sector organisations exposed to agricultural commodities fail to make full use of modern risk management techniques. Instead, they blame suppliers, traders and liquidity providers for shortages and price spikes that hit their balance sheets, subsidies or social programmes.

In fact, agricultural commodity risk is just like any other type of commodity risk, and needs to be managed properly. Naturally volatile, agricultural commodities can be easily spoiled and are also affected by the usual problems, such as shipping capacity and transport costs. Although such risks can be absorbed by firms and governments with large balance sheets, they might prove lethal for others if they are not managed appropriately with exchange-traded or over-the-counter derivatives.

This report highlights price risk management strategies by looking at how leading companies manage their exposures to agricultural commodities. It also examines the commodity trading and risk management and IT systems used in the market – both of which are vital tools for helping firms get a handle on their risk – as well as the impact of regulatory change.

 

Contents

Biofuels go global
SCB & Associates

With global output at an all-time high, and increasing demand for clean and secure energy, biofuels have become integral to international energy markets. SCB & Associates offers customers the market insight and product knowledge to trade biofuels effectively

Centralising force
Murex

As more agricultural organisations explore ways to develop and enhance their trading and risk management activities, a flexible, robust, centralised technology platform should be a top priority

Global expansion
CME Group

An increasingly diverse set of market participants require agricultural price risk management tools that can not only match current needs but also adapt to future market developments

Trading talent
Commodity Appointments

After an active year for mergers and acquisitions, competition is fierce among agricultural trading companies looking to attract the best staff

External pressures
Export Trading Group

How agricultural commodity risk management strategies have evolved in response to recent market shifts spurred by the global financial crisis

Adapting to change
Cargill Risk Management

The continued evolution of commodity markets has necessitated the development of new risk management strategies and created demand for a more diverse pool of trading partners

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