With hedge practices, vast difference between baking and banking

by Josh Sosland
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Asked this week how Grupo Bimbo has dealt in recent years with the increasingly volatile markets for ingredients, energy and foreign exchange, Armando Giner said the company has adopted “traditional” global guidelines for its hedging. Mr. Giner, who oversees risk management at Bimbo, said local managers have autonomy to make decisions, so long as ingredients are hedged at least four months and no longer than nine. "Local managers may have various opinions” about market conditions, “but at the end of the day we're bakers, not traders," said Mr. Giner, a corporate vice-president who also is in charge of investor relations at Bimbo. Cash purchases, futures and options are allowed for purchasing so long as positions are tied to primary positions, but "no exotic instruments" may be used, he added. The discussion about hedging occurred over dinner in Mexico City in advance of an interview of Daniel Servitje, Bimbo's c.e.o., conducted by the editor and publisher of Milling & Baking News (to be published in forthcoming issues). While the connection was not made during the discussion with Mr. Giner, Bimbo’s simple approach marks a jarring contrast to actions triggering the debacle over the past week at J.P. Morgan Chase & Co. in which an apparent credit hedge strategy went awry when the long and short positions proved badly mismatched both in quality and duration. Losses from the trade have rattled markets and raised questions (many, but not all, politically motivated) about whether Morgan was acting as a banker or a trader. Hedging may be simple but isn't simplistic at Bimbo, a company with some of the industry’s most highly respected purchasing executives. In Mexico, the company looks to hedge not only the ingredients but also associated foreign exchange risk. Bimbo's hedging approach fits well within the traditional boundaries set by successful grain-based foods companies. Mr. Giner's remarks, coming amid the turmoil at Morgan, is a reminder of the value of these boundaries.

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