Points To Consider

You should consider the following points when considering commodity price risk management solutions:

• A premium may be payable by you on the day you enter one of our options solutions. This will depend on a number of factors such as the transaction amount, strike price and settlement date.
• Our solutions do not cover the basis risk, which is the risk arising from entering into one of our solutions that is not identical to the commodity risk being covered. For example, our solutions use a commodity reference price sourced from a futures exchange such as the Chicago Board of Trade (CBOT). However, the commodity price, which, for instance, a farmer will receive upon the sale of their physical wheat, takes into account the grade of the wheat, transportation costs and other factors. Therefore, the fluctuations in the commodity reference price may not exactly match those for the commodity price. This is termed the basis risk.
• If a solution is terminated prior to its scheduled termination date or expiration date, an amount may be payable by you to the Bank, or by the Bank to you, depending on the mark-to-market value of the solution at the time of termination. This may include discounting the amount payable at the prior agreed settlement date back to the new agreed termination date. The discounting amount is based on the current market interest rates and compensates for potential interest earnings if the transaction was not terminated early.

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).