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One billion dollars. That’s the profit hit Procter & Gamble says it could face in FY27 from rising oil costs. The company has a policy of not hedging commodity costs with derivatives. With such a large potential loss it seems strange then to ask "should they have hedged"? But P&G's commodity risk strategy isn't an oversight — it's an explicit choice. They prefer to use “natural hedging” - a globally diversified portfolio, sourcing flexibility, cost cutting and pricing power,

Does selling options have a role in commodity risk management? Many commodity risk managers would shy away from even using options in the more traditional risk sense - buying calls to protect against rising prices or buying puts to protect against falling prices. But a recent intriguing article (https://iml.com.au/why-options-arent-as-risky-as-you-might-think/) from an equity fund manager in Australia, made an interesting argument about enhancing returns through intelligent o

Would you drive your car by only looking in the rear-view mirror? Probably not, but that's how many companies approach risk management - only implementing hedging after being hit by a major adverse price move. Reactive fixes in finance are far too frequent. Consider a few examples: Barings Bank - controls after the collapse Due to weak controls, Nick Leeson built up huge unauthorized derivatives positions which ultimately sank the 233-year-old institution. Reactive fix: Wides

“Fragility is the quality of things that are vulnerable to volatility.” - Nassim Nicholas Taleb John, our by now well-known Head of Procurement for Fancy Gizmos, was sitting at his desk and working through all the New York Times puzzles. Since he had implemented Forge aHedge and automated his copper hedging and risk management he had freed up a lot of time cleaning data, downloading forecasts, and checking and double checking a sprawl of spreadsheets. I mean he had to use his

"The most difficult thing is the decision to act, the rest is merely tenacity." - Amelia Earhart. By now you should be well acquainted with John, the Head of Procurement for Fancy Gizmos. John has normalized commodity risk management for Fancy Gizmo. He has built commodity risk management into a routine business practice and the benefits are well understood throughout the business from the factory floor to the board. He’s reviewing his daily automated, compliance and risk ema

“Nature hedges by cultivating resilience.” - Hendrith Smith. We’re getting to know John, the Head of Procurement for Fancy Gizmo. John is progressing nicely up the commodity risk maturity ladder. Nearly a year ago, as a first step, John hedged 50% of Fancy Gizmo’s forecast copper purchases for the next 12 months. John is a keen amateur zoologist and he loves analogies. He’s reading an interesting article on lemmings. A worrying thought struck John. “Am I a lemming?” he wonder

“Normalize: To bring to a normal or standard condition or state.” Oxford Dictionary. Last article we met John, the head of procurement for Fancy Gizmo. After reading some articles on the Forge aHedge website, John is progressing up the commodity risk maturity ladder. One day as John is sitting thinking what his next step should be, he’s disturbed by his boss, Sally, the CFO. “Dr Copper”, she affectionately calls him now after he helped smooth out recent market volatility, “I

“Even the greatest was once a beginner. Don’t be afraid to take that first step.” - Muhammad Ali. In our previous article we discussed a simple scale for assessing your commodity risk management maturity, starting from Naïve, progressing through Novice, Normalized and finally to Natural. Let me introduce you to John. John runs procurement for Fancy Gizmo Limited. A key component in Gizmo production is copper. Whenever his factory needs some copper John phones his trader frie

"You're only young once, but you can be immature forever." - Germaine Greer. Have you ever benchmarked where your organization sits on a risk maturity scale? David Hillson devised a useful scale listing four increasing levels of risk maturity: Naïve, Novice, Normalized and Natural. In order to deliver best practice commodity and financial risk management it is important to benchmark where you sit on the scale and understand the steps needed to improve your risk management cap