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Volume risk

As regards commodity risk, ^[3] a major concern is uncertainty re production - often referred to as "yield risk" - i.e. insufficient quantities of the respective commodity, being mined, extractedorotherwise produced. A participant here further faces uncertainty concerning demand, where large deviations from forecasted-volume may be caused, for example, by unseasonal weather impacting gas consumption. Other concerns include ^[4] plant-availability, collective customer outrage, and regulatory interventions. These changes in supply and demand often result in market volatility. ^[2] Producers here are relatedly subject to price risk,^[5] although in a narrower sense than usually employed.

In the context of business risk, volume risk relates primarily to revenue, where the deviation from budget may be due to external or internal factors.^[1] Internal factors, such as insufficient human capital and aging plant, may negate the business line's ability to execute the operationalorbusiness plan. External factors comprise primarily of ^[1] the competitive landscape. A PPP, or Public–private partnership, carries what is there referred to as "revenue risk".^[6]

Risk management entails ^[2] formally modeling demand and responding dynamically (if not preemptively) to the market. Scenario planning may explicitly incorporate varying levels in demand. ^[7] For PPPs, a tax-supported MRG, "minimum revenue guarantee", may be provided by the (local) government. ^[8][9] Re production uncertainty, an approach often taken is ^[5] to diversify spatially; it may also be possible to allow for contingencies in plant availability.

Direct hedging, though, "becomes difficult" ^[10] when the quantity is uncertain, particularly where the underlying commodity is not storable. One approach is to hedge against fluctuations in total,^[10] i.e., quantity times price. Various strategies have been developed, using, for example, weather derivatives ^[11] and electricity options. ^[10] At the same time, producers − and their customers − regularly hedge against price risk using ^[12] commodity-derivatives where available. Commodity traders will similarly have hedges in place for the resultant market- and volatility risk.

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