Know your exposure before it hits earnings
The biggest risk isn’t volatility — it’s the gap between market moves and operational reality.
For CFOs and CROs in the agricultural commodities sector, risk isn’t defined by market volatility alone. The real risk is earnings exposure — the gap between market movements and the company’s operational positions related to contracts, deliveries, quality adjustments, and settlements. It’s within this gap that margin erosion typically occurs.
When the FAO Food Price Index spiked to record highs in 2022 and later declined sharply, many organizations didn’t struggle because markets moved. Rather, they struggled because they lacked timely visibility into unpriced quantities, delivery timing mismatches, basis risk, and settlement mechanics.
In volatile markets, the key risk question is therefore not: “What is the market doing?” It is: “What are we exposed to right now — operationally and financially?”
The operational challenge behind this problem is familiar to many commodity organizations. Contracts are managed in one system, logistics in another, market exposure is tracked in spreadsheets, and finance closes the books after the fact. This fragmented setup often leads to surprises around unpriced quantities, misapplied pricing clauses, or delivery slippage that quietly translates into P&L impact.
SAP Agricultural Contract Management (ACM) closes these gaps by making commodity contracts the system of record and connecting them directly to execution and financial processes. ACM is an enhanced contract management application specifically designed for agricultural commodities. It integrates contract data with processes in finance, inventory, and risk management, ensuring compliance and providing a shared, consistent view of contract execution across the entire lifecycle.
With ACM, agricultural organizations can:
• Significantly reduce manual exposure reconciliation efforts while enabling same-day visibility into open price risk
• Extend ERP capabilities where standard MM, SD, and FI functionalities are not sufficient
• Strengthen governance and compliance
• Improve process consistency and transparency.
A key benefit for risk teams is the shift from simple market monitoring to position-based exposure management. With ACM — particularly when integrated with Commodity Management — risk reports (position reports) display commodity quantities that represent actual financial exposure for the company. For these reports to be meaningful, exposure data must be created accurately and promptly. Through integrated data and specialized tooling, organizations can build a comprehensive view of their market exposure and respond more effectively to price fluctuations.
A practical example illustrates the challenge: Imagine a grain processor managing thousands of grower contracts with different delivery windows and pricing mechanisms. In many cases, the final price is not fixed until after delivery or during a later pricing window.
If, for example, 8–12 percent of the contracted volume remains unpriced during a volatile market period, the company may still carry significant price or basis exposure. Without clear visibility into which contracts are fully priced, partially priced, or still open, management may underestimate how much margin is effectively exposed to market movements.
With ACM, contracts, deliveries, pricing events, and exposure reporting are managed in a single integrated system. This allows trading and risk teams to identify open pricing positions earlier, align hedging and pricing actions with actual physical positions, and reduce margin leakage caused by delayed pricing decisions, operational execution gaps, or settlement errors.
In volatile commodity cycles, reducing risk isn’t about predicting prices. It’s about understanding exposure early and executing consistently. SAP Agricultural Contract Management enables organizations to do exactly that.
