They modeled the relationship between prices of
long-term forward contracts on fuels (such as oil, coal and natural gas), the price of emission allowances and imported electricity and the long-term price of electricity forwards.
"In response," he said, "the international brewing industry placed
long-term forward contracts on the assumption that beer output would continue to rise.
The basic strategy calls for entering into
long-term forward contracts for physical delivery with big grain suppliers such as Minneapolis-based Cargill Inc.
Sure, SAA would not have locked in the predictability of exchange rates for as long, but it would have mitigated the potential accounting impact of marking-to-market such
long-term forward contracts. Furthermore, over time there's more of an opportunity to change the business' operating strategy to adjust to risks.
The foregoing discussion shows that a hedging strategy based on
long-term forward contracts can be almost as expensive as physical storage, even when short-term futures and forward prices exhibit backwardation.
Reportedly, the company thought it had hedged its
long-term forward contracts to supply American customers with petroleum products at fixed prices by entering into near-term futures contracts to purchase oil.