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Eddie & Price Risk Management 2012

T
TOFPIK

Asssessing the importance of FX risk when trading agricommodities. Determining Eurozone uncertainty.

1 of 27
Analysing the Business Case for
Developing Hedging Strategies for
Foreign Exchange when dealing
Agricultural Commodity Markets.

1) Assessing the importance of FX risk
management when trading agricultural
commodity derivatives.

2) Determining the impact of economic
uncertainty in the Eurozone

Eddie Tofpik
Head of Foreign Exchange
Price Risk Management for Agricultural Commodities


London – 27th June 2012
‘If you are not hedging then you are
             speculating!’
   by Eddie Tofpik – according to Google if you type this in verbatim
                     (6 quotes….5 of them are mine!)
                  Is there a legal liability by not hedging?


           The Example of the European Grain Markets…

Higher EUR vs. GBP = shipment of grains to Europe.
                                                    (Hedging with grain futures of course)




Lower EUR vs. GBP = shipment of grains to the UK.
                                                    (Hedging with grain futures of course)




Is this Grain Trader actually trading grains?
             …or are they trading the FX Market?
Let’s assume you are actually hedging your FX
                  exposure!

Whether for Agricultural Commodity Derivatives
  or for the underlying agricultural products!

What are some actual current & upcoming risks?
•   Example 1) – Decree n° 6,983 published 20th October 2009 – Brazil.
           ……its impact on margin payments to the BM&F.
            …repealed…but will some take advantage of it???

•   Example 2) – ‘Dodd-Frank’ or the Dodd-Frank Wall Street Reform
                              and Consumer Protection Act – USA.
                               and the related…
•   ‘EMIR’ or the European Markets Infrastructure Regulation – EU.

•   The World in ‘blocs’!

•   Example 3) - Tobin Tax (the famous quote ‘…lets say 0.5%...’).

•   Economics described using ‘dead bodies in the kitchen’*
                               *Jerome Booth, Head of Research, Ashmore Investment Management   .
Let us now have a quick look….


….at some actual FX examples.


       First, the Euro!
Eddie & Price Risk Management 2012
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Eddie & Price Risk Management 2012

  • 1. Analysing the Business Case for Developing Hedging Strategies for Foreign Exchange when dealing Agricultural Commodity Markets. 1) Assessing the importance of FX risk management when trading agricultural commodity derivatives. 2) Determining the impact of economic uncertainty in the Eurozone Eddie Tofpik Head of Foreign Exchange Price Risk Management for Agricultural Commodities London – 27th June 2012
  • 2. ‘If you are not hedging then you are speculating!’ by Eddie Tofpik – according to Google if you type this in verbatim (6 quotes….5 of them are mine!) Is there a legal liability by not hedging? The Example of the European Grain Markets… Higher EUR vs. GBP = shipment of grains to Europe. (Hedging with grain futures of course) Lower EUR vs. GBP = shipment of grains to the UK. (Hedging with grain futures of course) Is this Grain Trader actually trading grains? …or are they trading the FX Market?
  • 3. Let’s assume you are actually hedging your FX exposure! Whether for Agricultural Commodity Derivatives or for the underlying agricultural products! What are some actual current & upcoming risks?
  • 4. Example 1) – Decree n° 6,983 published 20th October 2009 – Brazil. ……its impact on margin payments to the BM&F. …repealed…but will some take advantage of it??? • Example 2) – ‘Dodd-Frank’ or the Dodd-Frank Wall Street Reform and Consumer Protection Act – USA. and the related… • ‘EMIR’ or the European Markets Infrastructure Regulation – EU. • The World in ‘blocs’! • Example 3) - Tobin Tax (the famous quote ‘…lets say 0.5%...’). • Economics described using ‘dead bodies in the kitchen’* *Jerome Booth, Head of Research, Ashmore Investment Management .
  • 5. Let us now have a quick look…. ….at some actual FX examples. First, the Euro!
  • 20. 2) Determining the impact of economic uncertainty in the Eurozone What did I say a year ago & how relevant is it now? my slide from May 2011….
  • 21. Eurozone breakup? or more likely Eurozone breakup () …and other expletives! • Has Spain escaped? • Has Greece escaped? • Have the German people let their Government escape? • Will the new/next set of bank ‘stress tests’ be as effective as the last? • European crisis policy compared to the UK & the USA – Economics explained using ‘dead bodies in the kitchen’* • Eurozone stability – what is Asia Doing? • Portugal + Greece + Ireland = Florida! – (Michael Elliott - Fortune 2nd may 2011) *Jerome Booth, Head of Research, Ashmore Investment Management.
  • 22. What are the relevant points… …now?
  • 23. Eurozone breakup? or more likely Eurozone breakup () …and other expletives! • Has Spain/Greece/italy (or anyone else) escaped? • Is the 1st of January 2013 the date? • Where would this leave Germany & others? • Will Swiss exchange controls be the way of the future? • European crisis – looking for one of three scenarios… 1) Muddling through! 2) Fast Grexit! 3) Slow Grexit! • What plans are in place. (Oct 2011, Mar 2012, Bloombergs blooper & currency printing) • What the banks are saying? • Eurozone – similarity to Italy in the 1970’s…and what occurred.
  • 24. I am mindful that time is short so…..
  • 25. here is the final bit!
  • 26. This Publication is issued by ADM Investor Services International Limited (‘ADMISI’ which is regulated by The Financial Services Authority and is a member of The London Stock Exchange. References to ‘we’, ‘us’ and ‘our’ in this Publication shall mean ADMISI unless otherwise stated. This Publication was prepared and distributed by us for information purposes only, and may contain information, advice, recommendations and/or opinions, which may be used as the basis for trading undertaken by us and our officers, employees, associated and/or affiliated companies. This Publication should not be construed as solicitation, nor as offering advice for the purposes of the purchase or sale of any derivative, security or investment. The information and opinions contained within this Publication were considered by us to be valid when published. This Publication may also contain information that has been provided to us by third parties. The source of such information may be disclosed within this Publication where relevant. Whilst we consider we have taken all reasonable steps to ensure the information is correct, we do not under any circumstances whatsoever, warrant the accuracy or completeness of such information. Any person placing reliance upon this Publication to undertake trading, does so entirely at their own risk, and accordingly, we do not accept any liability as a result, whether direct or indirectly incurred. Derivatives and securities markets may be subject to rapid and unexpected price movements, and past performance is not necessarily a guide to future performance. Currency movements may also have an unfavourable, as well as favourable effect on the value of the underlying investment and/or assets. Investments and/or strategies discussed herein, may not be suitable for all investors. Accordingly, if any person reading this Publication has doubts about their particular suitability, they should consult an independent investment adviser.
  • 27. Eddie’s Crayons… My Monthly Report FX & Commodities Report +44 20 7390 2952 (24 Hours) eddie.tofpik@admisi.com