Commodity Risk Management
When a company has exposure to commodities, it must decide how to manage the financial risk associated with price movement. Commodity risk is complicated and responsibility for mitigating risk can fall across disparate departments like procurement, treasury, and supply chain.
Nonetheless, with an effective risk management program, companies can gain a consolidated view of their risk and significant benefits in the form of reduced volatility and improved forecasting. Understanding market swings, quantifying net exposures, valuing hedges, and determining applications for hedge accounting all work toward establishing a firm handle on the risks and how to effectively manage them.
Chatham Financial understands the dynamic and operational elements associated with commodity risk. We work with treasury, supply chain and procurement teams, providing structure and processes based on our deep market knowledge and years of hedging experience. We support companies just starting risk management programs as well as companies with existing programs constrained by current solutions, such as those dependent on spreadsheets. Chatham’s independent perspective helps to assess company needs and produce the right tailored solution for clients to control their commodity risk.
Since 1991, Chatham has worked with companies across a wide range of industries to develop and execute strategies for managing financial risk. Our expertise supports clients in two key ways: First, our ability to develop strategies to mitigate commodity risk from an economic, accounting and regulatory perspective. Second, our proven success in executing transactions at a fair price and properly managing all aspects of the trade. Our clients’ confidence is grounded in our:
Practitioner expertise and experience: Chatham has advisors who know the markets. They understand both the physical and financial perspective for commodities, as well as the interplay with good hedge accounting. Our breadth of market experience covers different commodity types and different banks.
Chatham can evaluate a company’s unique situation against market best practices and other participants for informing terms, pricing, accounting treatment and reporting.
Sophisticated modeling and analytics: Our cutting edge quantitative approach can drive the ongoing operation of a rolling hedging program and allows us to respond dynamically to changing needs. These changes can encompass everything from market rates and volatilities to material changes in cross-asset correlations.
We educate our clients on the trade-offs of risk mitigation. Through our modeling and analytics as well as proprietary technology, we can evaluate exposures and determine the strategy and instruments that best align with our client’s risk tolerance.
Comprehensive approach: Chatham looks at commodity risk holistically. We evaluate correlations between commodities and currencies. Since many dynamics are involved in commodities, some companies need greater structure and process in reaching timely decisions. Others need technology applications to handle valuations. For many, it’s the combined expertise in hedging, hedge accounting, technology applications, and regulatory navigation that enable it to manage risk.