Cargill Cocoa & Chocolate

Tools for managing market risks (13/09/2010)

"Cocoa Bean Prices Reach All-time High of 5000 GBP/tonne." Improbable? Maybe, but thereís no telling what the future will bring. Predictions and estimates can be made for supply and demand, weather patterns, energy costs and the influence of financial institutions on price. But unpredictable factors can still have enormous influence on the price of the cocoa beans upon which we all depend. Remember when 1600 GBP/tonne seemed improbable?

Cargill Chocolate

What can be done to manage this exposure to uncertainty and business risk? One answer is diversified pricing strategies: companies can take cover or stay open as their vision dictates. Yet even these decisions may not work out exactly as planned.

In such cases, alternative pricing mechanisms, exchange traded options and over-the-counter (OTC) hedging tools can all contribute to reducing the risk of pricing decisions. They allow companies to take cover while still achieving reduction in price if the market comes down. They decrease exposure to market volatility, reduce the effect of surprise moves in the market and help maintain budgets, margins and predictable pricing.

For the past 16 years, Cargill Risk Management has been helping customers manage their commodity pricing risks with products such as the Digital Range Accrual, which caps the price from upside movement and gives rebates if the market goes lower.

Cargill Risk Managementís aim is to understand the concerns of the customer and their exposure to pricing risks, then work together with them to provide specific, tailored solutions for mitigating those risks. To learn more about these opportunities, please do not hesitate to contact your account manager.

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