SalmonEx™ is working with Bolsa de Productos de Chile (Chilean Commodity Exchange) in the development of a market place for the trading of derivatives of salmon at a global level.
The price of a commodity such as salmon is a source of risk, both for the producing company and for the consumer. The high risk negatively impacts the profitability of projects or long-term strategies.
Derivative assets (“futures” or “forwards”) are an efficient method of protecting against this risk. Commodities derivatives are commonly and widely used in the financial world today.
Forwards, the simplest kind of derivatives, consist of the creation of a contract or agreement to buy/sell a commodity in the future, which is sold off by compensation, at a pre-determined price (based on an index). If by the deadline, the price is higher than what was agreed, the seller will pay the buyer. If the price is lower than the one in the index, the buyer will pay the seller.
Because the price of salmon is volatile, the use of forwards will reduce the risk of price fluctuations, offering a way to protect against market volatility. This will also result in creating a curve of future prices for Chilean salmon, and will serve as a protection mechanism in front of price fluctuations.