Managing Commodity Price Risk

CHAPTER 5

Managing Commodity Price Risk—Direct Commodity Purchases

Overview of Risk Characteristics and Approaches

This chapter builds on the overarching concepts discussed in Chapter 1, the assessment of risk exposure and risk tolerance influencing the effort needed for managing price risk discussed in Chapter 2, and the short- and long-term forecasts developed in Chapters 3 and 4 through technical and fundamental analysis, respectively. The approaches we propose in this chapter help you to select and implement an appropriate risk management strategy when you expect commodity prices for direct purchases to increase in the short-term, long-term, or both. We define a direct commodity purchase as one in which the commodity itself is transformed ...