Amol Dhargalkar discusses commodity pricing volatility on Treasury Management International
Summary
Treasury Management International sits down with Amol Dhargalkar to explore the current state of commodity pricing and how companies and treasury departments can leverage processes and financial tools to mitigate commodities pricing risk.
With commodity pricing being in a period of turmoil, businesses are facing exposure to significant shifts, and while some companies may feel less direct impact than others, failure to manage a volatile cost base can have negative impacts on financials and reputation. Despite some calming in markets compared to peaks seen two years ago, prices remain above pre-Covid levels, and global instability suggests ongoing unpredictability.
Amol Dhargalkar on Treasury Management InternationalWith so many different commodities markets around the world — loosely divided between soft (such as agricultural products or livestock) and hard (typically natural resources that are mined or extracted) — risk mitigation is arguably more complex than for FX or interest rates.
Across industries, there has been a decentralized nature of commodities risk management across industries, with commodities producers needing to constantly manage risk, while consumer-facing businesses may adopt a more regional or reactive approach. This further emphasizes the importance of understanding and defining the nature of commodities risk and creating the appropriate team environment to develop and execute risk management effectively.
Amol Dhargalkar on Treasury Management International"CFOs are clamouring for someone to raise their hand and say, ‘Give me the ball.’ This presents an ideal opportunity for treasurers to step up, and lead or work alongside a team that can steer the company to a better place.”
Our commodity risk management expertise
If you have exposure to commodities, whether through purchasing fuel for your vehicle fleet or powering your factory with natural gas, Chatham can help you manage the financial risk associated with price movement. We’ll identify the sources of your commodity exposure and use a variety of advanced statistical models to quantify your risk. Our professionals will recommend the optimal indices and structures to reduce your risk and layer those structures on top of your unhedged position to calculate the risk reduction, opportunity cost, and transaction cost associated with each hedging strategy.
We draw on our extensive experience helping companies launch a commodity hedging program to draft policy, establish roles and responsibilities, align objectives between the procurement and risk teams, assemble a pool of potential counterparties, and create processes for running an effective commodities risk management program. We keep you and your team completely informed, helping everyone understand the complexities of commodity hedge accounting, including the P/L impact of your program.
Our team will share commodity hedging best practices with you, create price transparency for over-the-counter derivatives, handle ISDA negotiation, and apply hedge accounting to reduce earnings volatility. We can provide a risk policy tailored to your unique business structure. And when executing trades, you’ll benefit from our scale and sophistication, effectively enabling wholesale rather than retail pricing.
