You Can’t Go Broke by Taking a Profit
By Scott Wilson, Manager, Customer Risk Management
There is an old saying that goes: “You can’t go broke by taking a profit.” To help their businesses manage their fuel costs, reduce their risks and lock in a potential profit, many top operators use fuel price risk management techniques. Farmers, commercial truckers, school administrators, caterers, mine operators and waste haulers are just some of the operators who benefit from these strategies.
On a daily basis, information and recommendations on purchasing, inventory management, supply, market influences, contracting and more are disseminated and can cloud planning and purchasing decisions. Throw in a few seasonal trends and government reports, and it becomes downright difficult to “pull the trigger” and confidently make contracting decisions.
For the sake of simplicity and peace of mind, many of our customers base their contracting decisions upon our recommendations, which helps both our customers and our cooperative system. We can lock in the cost of fuel with our customers and our supply companies, thus reducing risks for all parties and protecting them from price fluctuations. It also helps remove the stress of trying to “time” the market when purchasing.
Unfortunately, it is sometimes easier for our customers to remember those few times when contracting was not beneficial. It’s been said that avoidance of pain (loss) is a stronger motivator than pleasure (profit), but good operators can ultimately see beyond the occasional downturns. Contracting fuel to lock in long-term profits is a better position to be in than taking the risk that high fuel prices might prevent short-term profits. Our experienced price risk management staff’s advice has benefited customers 8 out of 10 years. If you can make profits 10 out of 10 years and have lower costs than your competitors in 8 out of 10 years, that’s a good formula for success.
Identify, analyze, and evaluate all opportunities in a rapidly changing market. The GROWMARK Risk Management team puts these sound best practices in place in diligent effort to reduce risk and drive efficiency. Due to current supply concerns, the current market structure is in backwardation. Backwardation is when near term prices are more expensive than more distant months. Because of this, customers can contract further down the futures curve and take advantage of prices that are discounted compared to today’s spot prices.
If you think that contracting could help you lock in profits, talk to your GROWMARK Energy Account Manger today and get the information you need to make good purchasing or contracting decisions for your operation.
