Cargill Cocoa & Chocolate

Mitigating price risk (05/03/2010)

The ancient Chinese curse goes "May you live in interesting times". These are indeed very interesting times in the cocoa market. Unpredictable weather events, large financial flows from funds and economic turbulence has meant that the price level of the cocoa market has been highly volatile. Many food and chocolate manufacturers have suffered from pricing challenges leading to volatile profits and reduced competitiveness.

In an attempt to minimise the risk for manufacturers, Cargill Risk Management and Cargill Cocoa and Chocolate are now working closely together to design customized price-hedging tools for cocoa and chocolate customers. These tools combine our in-depth understanding of the cocoa market and the crop together with our in-house risk mitigation expertise, to provide our customers with specific price hedging solutions to reduce the effects of cocoa price volatility on their businesses. These solutions normally form part of the physical contract making them easy to manage. For example, some work like an insurance scheme, where in return for a small premium, customers are protected if the cocoa market falls after they have fixed the price.

The first step in developing these tools is understanding our customer's specific challenges and objectives, and then to design customised risk management solutions and cocoa buying strategies to suit their exact needs. The hedging of price risk can have many advantages; stable pricing, improved margins, elimination of surprises, and security of budgets. For further information please contact your account manager to set up an initial exploratory discussion.

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