Solution
The Treasury team of a multinational food manufacturer worked with Stable to protect themselves against a number of the commodity price risks they faced, in a way that accommodated their cash flow needs and protected their budgets, while keeping the solution simple and cost-efficient.
The member is a large multinational food manufacturer with exposures to a number of commodities from beef to chicken, to cheese to lentils.
The Treasury team needed a better way to have an overview of all of their exposures and a tool to manage price risk in line with the budgets they set for their procurement teams.
Pork trim is a key ingredient for many of the menu items sold by Stable’s quick service restaurant (QSR) client. But pork trim price volatility was 64% over the past year, making it difficult to forecast prices and complicated to set budgets and plan for the future.
Using Stable’s Club technology platform, the Treasury team created a portfolio of all of their previously unmanageable commodity price risks by selecting the benchmark prices that matched their exposures and then entering the amounts of the commodities they planned to purchase throughout the year.
They entered their budgets for each commodity and stress tested those budgets against their own and other third party forecasts using the Club’s specialized tools. They were able to easily share the results of their analysis with their colleagues via the Club’s platform, and after internal consultation they selected the levels of protection they wanted for each commodity. The Club calculated the premium required to self-insure the risks so the client could protect their budgets.
To manage the protection in line with their purchasing patterns and to minimize the impact on their cash flows, they were able to purchase the protection on an automated, monthly basis, rather than having to pay the premiums up-front. Premiums paid into the Club account were tax deductible and earned interest while in the account.
At the end of the contract, some of the commodity prices had risen, and some had fallen. Settlement amounts were calculated and sent automatically to the member, without the need for a lengthy claims process. Stable’s solution gave the client a tax efficient buffer against volatility across a whole portfolio of commodities, helping them increase the predictability of their cash flow in a simple and cost-effective way.
Stable’s Club helped the client manage exposure to price volatility with an innovative and targeted solution that zeroed in on their precise exposure.
Stable’s sophisticated data-science platform allowed the client to identify, track and assess risks across a number of commodities.
Stable’s protection contract was linked to a third party, independently published benchmark price selected by the client.
The member was able to choose protection levels which made sense for their business.
When commodity prices rose, the client’s settlement was calculated automatically and paid quickly. And for the commodity prices that had fallen, the client was able to keep the relevant premium they paid into the Club, less Club fees.
Premium may be expensed if you simply add it to the cost of your inventory.
Premiums were held in a segregated account for peace of mind.
Club fees were 100% transparent, and the Club was fully aligned with the member’s success.
