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{{Financial risk types}}
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Commodity Risk
Commodity risk refers to the uncertainties of future market values and of the size of the future income, caused by the fluctuation in the prices of commodities. These commodities may be grains, metals, gas, electricity etc. A Commodity enterprises needs to deal with the following kinds of risks


'''Commodity risk''' refers to the uncertainties of future [[market value]]s and of the size of the future [[income]], caused by the fluctuation in the prices of [[commodity|commodities]].<ref>{{cite book|title=Financial Sector Assessment|author= International Monetary Fund|author-link= International Monetary Fund|year=2005|ISBN=0821364324}}</ref> These commodities may be [[grain]]s, [[metal]]s, [[gas]], [[electricity]] etc. A commodity enterprise needs to deal with the following kinds of risks:
Price risk (Risk arising out of adverse movements in the world prices, exchange rates, basis between local and world prices)
Quantity risk
Cost risk (Input price risk)
Political risk


* '''[[Price risk]]''' is arising out of adverse movements in the world prices, exchange rates, basis between local and world prices. The related [[price area risk]] usually has a rather minor impact.
There are broadly four categories of agents who face the commodities risk
* [[Volume risk|Quantity or volume risk]]
* [[Cost risk]] (Input price risk)
* [[Political risk]]


==Groups at risk==
1.Producers (farmers, plantation companies, and mining companies) face price risk, cost risk (on the prices of their inputs) and quantity risk
There are broadly four categories of agents who face the commodities risk:
2.Buyers (cooperatives, commercial traders and trait ants) face price risk between the time of up-country purchase buying and sale, typically at the port, to an exporter.

3.Exporters face the same risk between purchase at the port and sale in the destination market; and may also face political risks with regard to export licenses or foreign exchange conversion.
* [[Production, costs, and pricing|Producers]] (farmers, plantation companies, and mining companies) face price risk, cost risk (on the prices of their inputs) and quantity risk
4.Governments face price and quantity risk with regard to tax revenues, particularly where tax rates rise as commodity prices rise (generally the case with metals and energy exports) or if support or other payments depend on the level of commodity prices.
* [[Buyer]]s (cooperatives, commercial traders and trait ants) face price risk between the time of up-country purchase buying and sale, typically at the port, to an exporter.
* [[Exporter]]s face the same risk between purchase at the port and sale in the destination market; and may also face political risks with regard to export licenses or foreign exchange conversion.
* [[Governments]] face price and quantity risk with regard to tax revenues, particularly where tax rates rise as commodity prices rise (generally the case with metals and energy exports) or if support or other payments depend on the level of commodity prices.

==See also==
* [[Fuel price risk management]]
* [[Sprott Molybdenum Participation Corporation]]
* [[Uranium Participation Corporation]]

==References==
{{Reflist}}

==External links==
* [https://web.archive.org/web/20130812135118/http://www.chicagofed.org/webpages/publications/understanding_derivatives/index.cfm Understanding Derivatives: Markets and Infrastructure] Federal Reserve Bank of Chicago, Financial Markets Group
* [http://help.sap.com/saphelp_globext607_10/helpdata/en/55/3f86506a8a475f8a47678fd7a68bb6/frameset.htm SAP Library - Financial Risk Management of Commodities]
{{Financial risk}}

[[Category:Market risk]]
[[Category:Commodities|Risk]]

Latest revision as of 03:42, 7 February 2023

Commodity risk refers to the uncertainties of future market values and of the size of the future income, caused by the fluctuation in the prices of commodities.[1] These commodities may be grains, metals, gas, electricity etc. A commodity enterprise needs to deal with the following kinds of risks:

Groups at risk

[edit]

There are broadly four categories of agents who face the commodities risk:

  • Producers (farmers, plantation companies, and mining companies) face price risk, cost risk (on the prices of their inputs) and quantity risk
  • Buyers (cooperatives, commercial traders and trait ants) face price risk between the time of up-country purchase buying and sale, typically at the port, to an exporter.
  • Exporters face the same risk between purchase at the port and sale in the destination market; and may also face political risks with regard to export licenses or foreign exchange conversion.
  • Governments face price and quantity risk with regard to tax revenues, particularly where tax rates rise as commodity prices rise (generally the case with metals and energy exports) or if support or other payments depend on the level of commodity prices.

See also

[edit]

References

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  1. ^ International Monetary Fund (2005). Financial Sector Assessment. ISBN 0821364324.
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