Hedging one’s choice of words

Brian Taylor

News reporters and writers can be hard pressed to please everyone when they put together a story, as I can certainly attest after more than two decades of attempting to keep the complaints and corrections to a minimum.

So it wasn’t surprising to hear from one of our publication’s readers with an objection not to something Recycling Today had written (phew!) but in this case to something he had read in the wider-circulation financial press.

This reader, an active trader and experienced hedger of his trades, says he was disappointed and flabbergasted to read a financial analyst quoted as referring to hedging as “like going to a casino.”

Perhaps worse yet, the editor of the news service publishing the story in which this analyst was quoted decided to use the phrasing “casino-like hedges” in the headline of the article. Thus, readers around the world were given the impression that hedging purchased commodities (in this case airline fuel) was akin to rolling the dice.

Readers of the entire article can eventually ascertain that the airlines losing out on their “bets” had in fact hedged their fuel purchases at a locked-in, predictable rate. When oil prices began plummeting, they missed out on some money-saving buying opportunities but only after years of adequately protecting themselves while buying fuel in a climate of rising oil prices.

Thus, the analyst quoted was referring, perhaps, to “money left on the table” when a buyer hedges during a time of falling prices.

Further on in the story, an airline executive properly notes that his carrier’s hedged fuel purchases did “mute the effect of lower fuel prices,” but “on the other hand, it will protect our earnings from the full effects of a [price rebound] if that were to happen.” That, of course, is the benefit of hedging.

Recycling company managers and other buyers and sellers of secondary commodities must make their own decisions regarding how often they hedge their trades and when to do so. They certainly should not look to a magazine editor for any advice!

The trader who contacted me about the airline fuel example was clear on where he stood, expressing bewilderment about any statement that hedging is like going to the casino. “When done right it has the exact opposite effect. It is taking the casino risk out of the business and providing a vehicle where you can manage price fluctuations in the marketplace,” he comments.

In the vast tide of business information that washes over us daily, some of it is bound to be of dubious value, as I must regretfully admit as one of the providers of that information. When you see something suspect in Recycling Today, please let us know, so we can learn from it and just as quickly set the record straight.