The Most Important Questions To Ask Before Signing A Bulk Oil Contract

Want to lock in a contracted rate for for your bulk oil ingredients?  As a purchaser buying raw ingredients for a manufacturing company, this can be a very smart thing to do.  

Signing a price contract can give your company stability on your cost of ingredients, and allow you to stategically plan your budget.  In addition, it can provide you with a bit of cushion if the commodity market unexpectedly goes south.

But, if you lock in your rates at the wrong time, you'll be required to pay more than the market price for oils.  It takes a firm understanding of the market and good help from your suppliers to lock in pricing at the right time.

So in the debate of whether to sign a supply contract or not, the definitive answer is yes, go for it-- but only at the right time.  When is it the right time?

You'll need to ask the right questions and the answer will emerge naturally after that.

If you're thinking of signing a supply contract for your bulk oil ingredients, to lock in pricing for a 3, 6, or 12 month period of time, here are the questions you need to be asking your supplier.

The Most Important Questions You Need To Ask Your Bulk Oil Supplier Before Signing A Contract

• How is the commodity market at the moment?
• What has it been like over the last 5 years?  Can I see a visual graph?
• How do you predict it will change in the next few months?
• If the market is extra high or low right now, what happened to get it in this situation?
• What other kinds of things can affect the price of this ingredient?
• Is there a typical harvest time where prices often go up or down?
• What kinds of contracts lengths are common in good years vs. bad?
• Is this price based off the Chicago Board of Trade?
• Is the market for this oil dependent on another (like how the canola price is ultimately dependent on the soybean market)?
• Will my price change if the market goes drastically up or down once I'm in this contract?
• What will I do if I need more inventory after my contract is signed?  
  • Do you expect that additional inventory will be hard to get?
  • Is there a particular lead time I should be aware of?
• Where does this deliver from?  Your warehouse or direct from the manufacturer?
• Are there any pending economic sanctions or governmental policies that could directly affect my prices?

Start asking these questions sooner rather than later!  It's important to talk about this information from the get go.  

For example, if you bring up this discussion in January, but the harvest time is in September, it may actually be in your favor to "ride the market" for another few months to bring you to the next market low.  You'll want to keep an eye on the market for as long as you can before locking into a rate.

Plan ahead-- have a conversation and as lots of questions ASAP to familiarize yourself with the market.  

Want to chat with one of our account managers about the olive oil commodity market?  Request a consult.