{"id":392,"date":"2012-06-11T10:37:43","date_gmt":"2012-06-11T15:37:43","guid":{"rendered":"https:\/\/allenergyconsulting.com\/blog\/?p=392"},"modified":"2012-06-11T11:55:06","modified_gmt":"2012-06-11T16:55:06","slug":"hedging-commodities-is-not-gambling-when-done-right","status":"publish","type":"post","link":"https:\/\/allenergyconsulting.com\/blog\/2012\/06\/11\/hedging-commodities-is-not-gambling-when-done-right\/","title":{"rendered":"Hedging Commodities Is Not Gambling When Done Right"},"content":{"rendered":"

Hedging commodities seems to be a recent interest among many companies I have talked with.\u00a0 There are significant discrepancies of what a hedge really is\/should be.\u00a0 Hedging a product can be better worded as insuring an outcome within a certain degree.\u00a0 Those who tout profits and riches are not talking about hedging, but gambling\/trading.\u00a0 Gambling\/trading does have its own merit when done right, but for this blog I would like to focus on hedging.<\/span><\/span><\/p>\n

Hedging should not be focused on the concept of making money.\u00a0 It should be focused much like insurance.\u00a0 One does not buy insurance to obtain wealth, but to protect against wealth destruction.\u00a0\u00a0 A proper hedge should protect oneself, commensurate with the level of cost for the hedge.\u00a0 An analogy would be buying a low deductible\u00a0versus a\u00a0high deductible insurance.\u00a0\u00a0 The decision to purchase is the function of perceived risk and financial stability.\u00a0 Another misstatement by many is the fact there could be \u201cfree\u201d hedges.\u00a0\u00a0 There are no free hedges as there are no free cakes.<\/span><\/span><\/p>\n

When to hedge?\u00a0 Hedging makes sense when the product to hedge is not a core part or does not represent a large portion of your business profits.\u00a0 If it does represent a large portion of your business, it should not be represented as only as a\u00a0hedge, since the product should represent a large core competence of your business.\u00a0 Your team should have a good understanding of the trend and the fundamental nature of the product and be able to effectively trade the product.\u00a0 In the case it represents a smaller portion of your total cost of business, designing an effective hedging program would be a worthy cause.\u00a0<\/span><\/span><\/p>\n

\u00a0A hedging program should be tailored and incentivized to reduce volatility and offer a stable cost for projections of earnings.\u00a0\u00a0 It should not be seen as a profit center.\u00a0\u00a0 Hedging programs which get caught up in profits eventually becomes a trading program.\u00a0 The hedging program may produce positive results, but these profits should be saved for the rainy days when the hedging program produces negative results.\u00a0 The best hedge programs are systematic.<\/span><\/p>\n

I have many years in the trading environment along with the corporate planning environment.\u00a0\u00a0 My group at AEP was instrumental in designing the first approved hedging program by the public utility commission for our supply chains consumption of on-road diesel and gasoline.\u00a0 At All Energy Consulting we understand the energy markets and can effectively navigate you in deciding and designing a hedging program for the various energy commodities.\u00a0 Please contact us to help you evaluate and\/or decide on a hedging program.<\/span><\/span><\/p>\n

 <\/p>\n

Your Energy Consultant,<\/span><\/span><\/p>\n

David K. Bellman<\/span><\/a><\/p>\n

614-356-0484<\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Hedging commodities seems to be a recent interest among many companies I have talked with.\u00a0 There are significant discrepancies of what a hedge really is\/should be.\u00a0 Hedging a product can be better worded as insuring an outcome within a certain degree.\u00a0 Those who tout profits and riches are not talking about hedging, but gambling\/trading.\u00a0 Gambling\/trading […]<\/p>\n","protected":false},"author":1,"featured_media":216,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,3,4,26,6],"tags":[151,150,149,148,11],"class_list":["post-392","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights","category-natural-gas","category-ngls","category-oil-petroleum-products","category-power","tag-commodities","tag-energy","tag-hedges","tag-hedging","tag-trading"],"_links":{"self":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/392","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/comments?post=392"}],"version-history":[{"count":4,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/392\/revisions"}],"predecessor-version":[{"id":396,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/392\/revisions\/396"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media\/216"}],"wp:attachment":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media?parent=392"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/categories?post=392"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/tags?post=392"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}