How to manage your commodity price risk using Futures contracts

Are you working with commodities, whether trading or processing them? If so, you’re exposed to the risk of price changes. Given that commodity markets are generally quite volatile (Creti et al., 2013), it’s wise to protect yourself—this is known as “hedging” in the commodity trading world. For example, when the Suez Canal was blocked, the coffee supply dropped, causing Robusta futures on the London exchange to rise by 2.8%. Risks like these can be mitigated by using a futures contract.
With a futures contract, you lock in a price for buying or selling a commodity at a later date, giving you security and helping to manage unexpected price changes. There are different types of futures, including exchange-traded and over-the-counter (OTC) contracts. Like stocks, futures are bought and sold through brokers. Choosing the right software to manage your commodity trading can make a significant difference here.
The ideal Commodity Trading Software
Arantys is an integrated ERP and commodity trading software solution that supports all your business processes. It combines everything—from trading and logistics to finance—into one system. In Arantys, you can record all your physical and derivative products, from contract through to payment. This makes planning, analysis, monitoring, and reporting easy, all within a single, organized environment. For companies seeking real-time insights into positions and mark-to-market hedging, Arantys is an ideal choice.
Always in Control with Arantys
With Arantys, you can easily record all the key details you need for your contracts, such as your partners, the commodity type, the price, and the volume. A major advantage of Arantys is that it provides a complete and up-to-date view of all your contracts, whether for physical deliveries or exchange-based price agreements. Arantys helps streamline the entire process, from approval to settlement, so you always have a clear picture of your company’s position.
Full integration with your Financial ERP Modules
A key benefit of recording your futures contracts in Arantys is the automated settlement process. The settlement process is fully integrated with the financial modules of Oracle JD Edwards ERP. Each day, the software checks if there are any futures contracts reaching their last trading day and whether the necessary price information is available in JD Edwards. This price can be entered manually or automatically. Arantys then generates a corresponding contract for settlement, directly processing it into the appropriate general ledger account. Automating this process helps prevent manual errors and greatly enhances the efficiency of your financial processes.
Automatic Contract Settlement with FIFO
Arantys also has a convenient feature for automatically settling similar futures contracts. This system, known as FIFO, ensures that contracts with similar specifications are automatically settled against each other, as often done on commodity exchanges. If contracts meet specific criteria, they are automatically processed and reconciled by Arantys. This process is fully integrated with the financial modules in JD Edwards, saving your finance team valuable time, allowing them to focus more on monitoring and control.
Conclusion
Recording your futures contracts in Arantys makes your financial processes significantly more efficient. Additionally, you gain better insights into your positions, knowing exactly which risks need to be hedged. Want to learn more about our integrated solution for managing trading and finance?

Bart Dix
Managing Partner
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