The liberalization of the Mexican energy sector is a once-in-a-generation event. The world’s sixth-largest user of hydrocarbons is moving to free-market pricing, and domestic and foreign investors alike have already made significant capital commitments to the sector in anticipation of this change.
Reprinted with permission from the Association for Financial Professionals.
By: Timothy Johanson
A strategy to better manage energy price risk can help you protect your margins, manage budgets more effectively, minimize overall cash flow volatility and be more competitive in rising commodity price environments.
By: Rob Wolter
Blizzards during planting season and spring flooding.
Unpredictable political shifts and conflicts.
Pressures to buy lower than your competitors.
In the commodities markets, every fraction of a cent counts. When you’re dealing with large volumes, a few pennies can have a significant impact on margins, profitability and operating capital.
How can you remove uncertainty from the oil market? The quick answer: You can’t.
Whether it’s price volatility, geopolitical factors, liquidity constraints or weather volatility, you can’t remove uncertainty from the market. Not completely.
But, you can put parameters around uncertainty that can help you think more rationally about it as you make hedging decisions for your business.
Go ahead, Google “hedging” or “financial hedging”—see what comes up on that first page.
Most likely you’ll find a vast list of articles that include technical terms or definitions of what hedging is and the role it plays in the finance world.
In the world of plastics, pricing has been a bit of a moving target the last year-plus.
Since the beginning of 2016, the price of propylene has:
- Increased 43 percent (Feb.-Sept. 2016)
- Decreased 27 percent (Sept.-Dec. 2016)
- Increased 65 percent (Dec.
Eventually it’s bound to happen.
The bad trade.
If you’ve traded commodities, (we’ll use ethanol and corn markets as an example) for any length of time, you’ve probably experienced the emotions that come next.
First, regret. Wishing you hadn’t just made that bad trade.
In June, the Financial Accounting Standards Board (FASB) voted to proceed with finalizing the Accounting Standards Updates (ASU) for hedging activity. The final rules are expected to be announced in the next few months. Recognizing that our customers are impacted by these changes, Cargilll Risk Management’s Andrew Brodbeck asked Tim Potter at HedgeStar, a global firm based in Minneapolis, a few questions.
Increasing market volatility.
Mounting competitive pressures.
Changes in policy and regulation.
The pressures on today’s risk managers seem to grow by the day. As a result, the ability to feel confident in mitigating price risk when it comes to commodities or other asset classes may run pretty low from time to time.