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Resources Taming Commodity Risk: A Two-Tier Hedging Strategy

Taming Commodity Risk: A Two-Tier Hedging Strategy

By Daniel M. Perkins, CTP
AFP Exchange, March 2010

Companies hedging commodity risk traditionally relied on procurement strategies such as fixed-price contracts, escalation clauses and inventory stockpiling to minimize the risk of price escalation. But with today’s volatile commodity pricing, procurement measures alone often are not enough. Meanwhile, the greater risk is forcing companies to step into the commodities markets for the first time, using derivatives instruments to further offset rising prices.

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