Four financial strategies for food and agribusiness companies to mitigate risk in economic uncertainty

Robin Wenzel, Group Head, Wells Fargo Agri-Food Institute with contributions from Jill Trainor, Head of Wells Fargo Commercial Rates and FX Solutions, Cecilia Kang, Vice President, Commodity Agriculture Products and Trevor Bishop, Sales Associate, Commodities Securities

Market conditions, tariffs, and ongoing trade negotiations remain top concerns for food and agribusiness companies. As uncertainty persists, businesses are seeking ways to navigate these evolving circumstances to minimize potential financial impacts. Wells Fargo works closely with CEOs and CFOs in this space to address these headwinds, leveraging four financial strategies companies can deploy to manage risk.

Commodity Hedging

The commodities market is historically volatile, and food and agribusiness companies are feeling the pressure. Amid this backdrop, hedge volumes across agricultural products have increased as businesses look to protect production costs and margins from sharp price swings.

However, with heightened volatility and large price movements come significant capital requirements — both initial and variation margin — that companies must post to exchanges and their futures clearing merchants (FCMs) when hedging via futures contracts.

Some companies have shifted to using banks as over-the-counter (OTC) hedge providers, an alternative that often avoids the high initial margin costs and, in many cases, eliminates the need to post variation margin if hedge positions move unfavorably. By saving on margin-related capital costs, businesses can deploy that liquidity elsewhere within their operations.

Moreover, many companies are also moving existing futures positions to OTC derivatives to reduce the cost of capital while maintaining effective protection over costs of goods sold and sales revenues.

Given the current commodity environment, we are also seeing increased utilization of traditional borrowing facilities — especially among companies dependent on imports, such as those operating in coffee and cocoa markets with little domestic supply.  

Additionally, these companies are exploring tailored structures like prepaid swaps, commodity repurchase agreements, and supply intermediations to enhance payment terms across their supply chains and to boost working capital efficiency.

 

In addition to agricultural commodities, many businesses are hedging energy consumption, taking advantage of recent declines in natural gas and diesel prices. For example, forward diesel prices are approximately 14% lower than the 2024 average.¹ Proactive hedging during price downturns helps companies lock in lower costs for the near-to-mid-term.

Source: Bloomberg Historical Price Data as of April 23, 2025

While hedging strategies are critical during periods of volatility, companies that consistently apply disciplined hedge programs — even during stable markets — tend to be better positioned when unexpected market shocks occur.

Managing Interest and Currency Risk

Although the Secured Overnight Financing Rate (SOFR) has declined since the Federal Reserve began easing rates, it remains relatively high. Companies with variable-rate debt should consider hedging to manage future interest costs.

One effective strategy is to hedge a portion of variable-rate debt into a fixed rate. Many companies today are choosing interest rate collars instead of traditional fixed-rate swaps. A collar places a cap on monthly SOFR loan rate resets (a worst-case rate), while allowing interest expense to decline if loan resets are lower than the cap down to a floor level (best-case rate). Collar structures may provide borrowers a hedge that offers both protection and flexibility compared to vanilla interest rate swaps.

Currency risk also deserves careful attention. During periods of trade negotiations and tariffs, currencies like the U.S. dollar and Euro have experienced abnormal volatility. Companies exposed to foreign exchange (FX) fluctuations can benefit from layered hedging strategies, gradually building positions over an 18- to 24-month period. This reduces exposure to extreme market swings and creates a smoother, more predictable effective rate. An illustration of this can be shown in the chart below. The chart shows year-over-year FX volatility with the unhedged category taking on the highest rate of volatility. 

The chart below illustrates that companies operating without currency hedges (EURUSD Spot) are fully exposed to wide swings, whereas those using layered hedging strategies (2Y Layering) experience much less volatility. 

Options strategies can further enhance risk management. Companies that adopt a binary "hedge or no hedge" approach often struggle when markets move abruptly. Concerns about locking in losses or hedging below budget rates can cause hesitation, exposing the company to even greater risks.

In these cases, purchasing options — effectively paying the market to manage the risk — can offer flexibility. Options allow companies to cap potential losses while preserving the ability to benefit from favorable market movements, providing a balanced approach to risk management in uncertain environments.

“With all the uncertainty right now – from tariffs to market swings – managing risk isn’t just smart, it’s essential. Companies need to evaluate their interest rate and foreign exchange exposures and use targeted risk management strategies to help create financial stability in a volatile environment” – Jill Trainor, Head of Wells Fargo Commercial Rates and FX Solutions. 

Supply Chain Finance

Managing cash flow has always been a top priority for businesses, but in today’s fast-changing global economy, it’s become even more critical. Supply chains are more complicated, and financial pressures like inflation, tariffs, and higher inventory levels are squeezing liquidity across industries. To navigate these challenges, many companies are turning to supply chain finance programs as a flexible, effective solution.

Supply chain finance helps businesses manage cash more strategically. It works by giving suppliers the option to get paid early, with funding provided by a financial institution instead of waiting for the buyer’s full payment terms. Suppliers benefit by getting quicker access to cash, usually just a few days after sending an invoice, while buyers can extend their payment timelines without straining supplier relationships. The buyer repays the financial institution later, based on terms they’ve agreed to ahead of time.

This approach delivers clear advantages on both sides: suppliers strengthen their cash flow without borrowing heavily, and buyers preserve working capital for other needs—whether that's investing in growth, weathering economic uncertainty, or simply running smoother day-to-day operations.

Supply chain finance isn’t meant to replace traditional financing like business loans or factoring, but it can be a smart complement to those tools. It gives companies more options for managing liquidity without having to rely entirely on credit lines or more expensive borrowing.

With rising costs, unpredictable supply chain risks, and tighter cash conditions, supply chain finance is gaining momentum. It offers a practical way for businesses to stay financially flexible and better positioned for whatever comes next.

Robin Wenzel is a senior vice president and the head of Wells Fargo’s Agri-Food Institute, a team of national industry advisors providing economic insights, analytics, research, and reporting across the agribusiness, food, and beverage spectrum. With more than 30 years of commercial and corporate banking experience, Robin leads with a strategic vision and an ability to expand and execute on the team’s deliverables to better support Food, Beverage, and Ag customers and prospects. 

Robin received her degree in Business from the University of San Francisco with an interest in Finance and International studies. 

Robin has long been recognized for her work as a leading voice in the wine industry in Napa, CA. She is also a recipient of the 2017 North Bay Business Journal Women in Business Award.

1. Source: Bloomberg Historical Price Data as of April 23, 2025