NAB offers soft commodity hedging in Australia

National Australia Bank (NAB) has launched a range of soft commodity hedging products to cater for the country's large agricultural sector.

Called Agribusiness Price Risk Management Solutions, the new service will allow producers, merchants and processors to hedge wheat, cotton, canola, corn (sorghum), sugar or wool commodities up to three years in advance, depending on the commodity.

The product range includes swaps, floors, caps, collars and participating forwards, traded over-the-counter (OTC) and cash-settled. The hedging tools will be offered in certain foreign currencies, such as US dollars as well as in Australian dollars to eliminate the need to establish a foreign exchange hedge as well.

NAB has also secured an exemption from the Australian government to offer the OTC hedges to smaller operators. Until now, OTC transactions were limited to larger agricultural enterprises and corporate clients, according to Mike Carroll, general manager of Agribusiness based in Melbourne. “Previously, restrictions applied to the use of OTC hedging products by customers with gross assets under $5.674 million. That limited the use of risk management products to larger agricultural enterprises and corporate clients,” he said.

In turn, the bank will now offer the range of products to customers with at least $567,400 in net assets and $170,220 turnover. But Carroll added that customers have to obtain advice from a licensed futures adviser as an independent check so that they fully understand the hedging strategy.