Collar

A collar may be suitable if you require protection against adverse commodity price movements and want the potential to benefit from limited favourable commodity price movements, without having to pay a premium.

Benefits

• Price protection - you receive protection against adverse commodity price movements through a guaranteed worst case price.
• You are not locked into a fixed price and have the potential to benefit from limited favourable commodity price movements.
• No premium - these transactions can be structured on a zero premium basis.
• Customisation - you determine the quantity of the commodity you want to cover, the timeframe, the currency and the price protection level that suits your needs.
• Simplicity - do the transaction in the currency of your choice. By transacting in Australian dollars, you eliminate the need to hedge the associated foreign currency exposures.

Points to consider

• The transaction does not cover the basis risk, which is the risk arising from entering into the transaction not being identical to the risk being covered.
• You only have limited potential to benefit from favourable commodity price movements.
• There may be a cost if the transaction is terminated prior to the settlement date.

For an example of how a collar works, click here. 
 

Important information about advice
As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on the advice, consider its appropriateness to your circumstances. View our Financial Services Guide (PDF 59kb).

View the Product Disclosure Statement (PDS) for Agricultural Collar (PDF 146kb) issued by the Commonwealth Bank of Australia, and consider it before making any decision about the product.