Commodity Risk

In commodity market, you see that prices of different commodities are increasing fastly. But, no one trader is sure that next day prices will also increase or decrease because of instability. According to the nature of commodity, many factors affect it. If it is necessary for human living, then its prices are controlled by government. So, government budget provisions will be shown as commodity risk for traders. Govt. may increase taxes on commodities which will increase the cost of commodities. Many other risks may also include in commodity risk. If a trader gets his goods from foreign country, risk of damage of commodity can also include in commodity risk.

Commodity Risk Management ( Under Financial Risk Management)

Commodity risk management is the practice of creating economic value in an organization by managing exposure to commodity risk. Some of commodity may be inevitable for human basic needs. Following techniques are used for commodity risk management:

1. Quota Control system.

2. Risk Assessment.

3. Create best hedge against increasing cost of commodity.

4. Commodity Usage budget.

5. Alternative Risk treatments.

6. Taking the services of specialist teams for controlling the commodity risk.