US Dairy Company Improves Hedging Effectiveness and Risk Management with Eka
Dairy companies need to continuously monitor and react to rapidly evolving consumer markets. Food fads and trends, population growth, and the expanding middle class in developing nations have led to significant market shifts. To ensure profits remain on target, dairy companies need to aggressively manage margins. They must continuously evaluate risks while quickly responding to market shifts, yet most dairy companies rely on spreadsheets to analyze data. The process of collecting data from various sources, including market data, and updating spreadsheets is time-consuming. It wastes time and money and results in missed opportunities.
A US dairy organization was looking for an effective way to monitor profit margins from milk and processed milk products. It needed to analyze costs and revenues on demand to ensure it was meeting its plan.
The company did not have instant visibility to manage risk effectively and time markets better. The existing process involved manually pulling data from existing systems – spreadsheets for inventory, Oracle ERP for physicals, direct brokers’ statement from multiple brokers, different formats for derivatives, spreadsheets for additional information on inventory, and market data from multiple data feeds and websites. The company would apply rules and adjustments to handle exceptions, process issues, inaccuracies, and the availability of data in the existing source systems. Because this was a time-consuming process, the company’s hedging strategy wasn’t optimized.
The company’s hedging decisions were delayed because too much time was spent creating reports. The market would move by the time it could see its true exposure, creating missed opportunities. Its risk policies were not in line with business defined thresholds. Risk limit breaches often occurred and were not immediately detected.
Analysis of gains and losses took valuable time to create, thereby increasing risk due to delays in identifying market risk.
The company implemented Eka’s Consolidated Position, Consolidated Mark-to-Market, Procurement and Risk apps to consolidate and automate contracts and inventory from ERP, budgets and forecasts from spreadsheets, and CSV broker statements from FCM for all products – butter, milk, cheese, etc.
The solution provides pre-built connectors to market data providers and allows for configuration of risk policies in line with business defined thresholds of contract prices, profit margins and hedge allocation percentage.
<img class=”alignleft size-full wp-image-6279″ src=”https://www.ekaplus.com/wp-content/uploads/2018/06/Position-and-Mark-to-Market-job-2.png” alt=”” width=”800″ height=”447″ />The solution generates an overview of risk exposure by product and enables a review of year-to-date realized gains and losses.
The solution was deployed in eight weeks and started providing benefits immediately. It has enabled faster, better decision making by providing real-time analysis of position and risk.
The company has access to instant executive dashboards and gets real-time alerts for breaches of risk limits so the company can quickly respond to increased risk. With the Eka Risk app, the company can aggregate data from disparate systems, helping it to mitigate risk exposure.
The management team can evaluate budgeted spending, actual spending, projected spending, and coverage across the organization in real time. With Eka’s Consolidated Position and Consolidated Mark-to-Market apps, the company can now view exposure at the click of a button instead of waiting days for manual reports. The solution also eliminates any chance of human error while it aggregates, blends, and analyzes inputs from all data sources to provide one, accurate visual representation of position in real time.