The Hedging Corner: Manufacturers take a hit, big banks cash in


"U.S. manufacturing growth slowed substantially in May, as the ISM index fell to 53.5, the lowest level since September 2009. ... higher commodity prices and a sharp decline in automobile production cut into manufacturing growth and put a chill on hiring." Bad news, that, as reported by the Wall Street Journal in its article, High Commodity Prices Slow Manufacturers (WSJ, June 1, 2011). [See related articles here and here on PlasticsToday.]

Manufacturers didn't have to take a hit due to higher commodity prices; but they chose to - at least those without a hedging program did. Are you among those manufacturers? Isn't manufacturing in the U.S. hard enough without allowing the cost of resins, energy, and other commodities to dictate your success and, ultimately, determine if you stay in business? Drop the fiddle and take the wheel. Establish and implement a smart hedging program.

Compared to manufacturing with all its complexities, hedging is easy - and smart business. Take a lesson from the big banks. Unlike manufacturers, they don't have a fundamental business reason to trade or hedge commodities. Higher commodity prices don't hurt a bank's bottom line. Big banks have simply learned how to trade and manage risk within a set of rules, and then take advantage of the commodities markets -- i.e. make money. Making money trading is a lot harder to do than just managing risk, which is all manufacturers need to do....
Read more