Protect the margin you planned.
No one can predict prices, but the range they move in can be measured. Vadar Alpha measures your exposure across buying, making and selling each day, helps size hedges as it changes, and shows how much of this year's earnings target is at risk.
Many hedge programs are reviewed once a quarter. Purchases, sales contracts and stock can change each week. Between reviews, the real exposure drifts away from the hedges, and the year's earnings target drifts with it.
The share to hedge is set against the budget. As real amounts change, you end up hedging too much or too little.
Some sales contracts already pass cost on to customers. Without the net position, you can hedge what is already covered and miss what is not.
A hedge that loses money can look like a mistake, even when it kept earnings steady. Without earnings at risk in dollars, the program is hard to defend.
Vadar Alpha estimates how far your margin could move over the year. Each hedge is sized to narrow that range at the lowest cost, inside the limits your board sets.
| Plan | Unhedged range (low) | Unhedged range (high) | Hedged range (low) | Hedged range (high) | |
|---|---|---|---|---|---|
| Jan | 22% | 22% | 22% | 22% | 22% |
| Feb | 22% | 21% | 23% | 22% | 23% |
| Mar | 22% | 20% | 24% | 21% | 23% |
| Apr | 22% | 19% | 25% | 21% | 23% |
| May | 22% | 18% | 26% | 21% | 24% |
| Jun | 22% | 17% | 26% | 20% | 24% |
| Jul | 22% | 17% | 27% | 20% | 24% |
| Aug | 22% | 16% | 27% | 20% | 24% |
| Sep | 22% | 16% | 28% | 20% | 24% |
| Oct | 22% | 15% | 28% | 20% | 24% |
| Nov | 22% | 15% | 29% | 20% | 24% |
| Dec | 22% | 14% | 29% | 19% | 25% |
We combine your purchases, sales contracts and stock into one position for each commodity.
Each hedge is sized to the real exposure, priced for later delivery, and kept inside your limits.
Your team or ours places the trade. We score the protection and its cost against the agreed baseline.
| Step | Earnings at risk, $M |
|---|---|
| Unhedged | $6.0M |
| Purchases hedged | −$2.1M |
| Sales matched | −$1.2M |
| Inventory timing | −$0.5M |
| Hedged | $2.2M |
Each hedge is recorded with the exposure it covers, so you can see the protection it delivered and what it cost, in dollars. Value at Risk stays inside the limits you set.
Commodity risk management turns market moves you cannot predict into a range you can plan for. It rests on four steps.
Exposure is the amount of a commodity whose price change will reach your earnings. It comes from purchases not yet priced, inventory on hand and sales contracts with fixed prices. Many companies measure it department by department. Vadar Alpha nets it into one position per commodity, so a fixed price sale and an open purchase that offset each other are not hedged twice.
A hedge ratio set at budget time drifts as volumes change. Vadar Alpha sizes each hedge to the current net position and prices it against the forward curve, inside the limits your board approves.
Value at Risk estimates how much a position could lose over a period at a chosen level of confidence. Earnings at risk applies the same idea to the income statement. Vadar Alpha reports both, before and after hedging, so you can see what each hedge buys.
Hedges are often judged by whether they made money, which misses the point. A hedge that loses money while the physical purchase gets cheaper did its job. Vadar Alpha records each hedge with the exposure it covers and reports the combined result, in dollars.
Every decision arrives as a plain instruction, with the dollars at stake, the reason, and the point at which it stops paying.
Measured asMeasuring how much commodity price moves can change your earnings, then deciding how much of that risk to keep and how much to hedge. Vadar Alpha adds up the exposure across buying, making and selling, so hedges cover the real position, not a budget amount.
How far earnings could fall over a period because of price moves, at a chosen level of confidence. Vadar Alpha reports it in dollars, before and after hedging, so you can see what each hedge protects. A hedge that loses money while the purchase it covers gets cheaper has still done its job.
No. A CTRM (commodity trading and risk management) system records your trades and positions. Vadar Alpha reads from it and from your ERP, combines the exposure across buying, making and selling, and recommends how much to hedge.
Your team places the trades, with ours beside them. If you would like our team to take more of the lead on hedging, talk to us.
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A 30 minute conversation to see where your margin leaks and whether we can help.
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