Risks Involved on Commodity Prices

The common problems industries, manufacturers, processors, etc. face in Managing Commodity Price Risks in an uncertain and volatile market environment has necessitated that attention be focused on this area of operations. It is a fact that anyone involved in commodity business fully knows the risks involved, viz.:

You buy and prices fall sharply, the problems include lost capital and decline in corporate profits

You did not buy and prices rise sharply, the problems include lost capital and decline in corporate profits

In both cases it is difficult to sell because of tough competition and the Company decides to pass to the consumer.

The Importance of Commodity Risks

The importance attached to managing Commodity Price Risks includes:

Commodity Costs and Savings

Analysis has shown that every dollar saved in Commodity costs can contribute significantly to total Corporate Profits. Another way to look at this is to compare a savings from better purchasing with increased Company Sales (before Tax), it would take an additional $19 million in new sales to generate the same bottom line profit as a $1 million savings in Commodity purchasing.

Volatility in Commodity Prices

The daily wide fluctuations in commodity prices have shown that the prices of Vegetable Oils, animal feed, other raw materials etc. are no exception.