Sunflower Oil Supplier Contracts: Fixed Price vs Floating Price Models

The choice in one line

A fixed price locks the figure for the contract period. A floating price moves with a reference, so what you pay on each shipment is settled later. Neither is cheaper on average — they move risk between the two parties, and which one suits you depends on whether certainty or participation matters more to your business.

Fixed price

You and the seller agree a number, and it holds for the volume and period contracted regardless of what the market does afterwards.

It suits you when you have already sold your own output forward, when your margin is thin enough that a move against you would erase it, or when you simply need a number to budget against.

The cost is that a fall in the market is not yours. You also carry counterparty risk in a different way: if the market moves far enough against the seller, a fixed contract becomes the one they most regret, and performance is where you find out how solid the relationship is.

Sellers price certainty in. A fixed quote over a long period will usually sit above the equivalent floating basis, because the seller is carrying the risk you are shedding.

Floating price

The price is tied to a published reference and settled per shipment, usually as the reference plus or minus a differential.

It suits you when you can pass through cost changes to your own customers, when you are buying across a long period and want the average rather than a single point, or when you believe the market is falling and want to participate.

The cost is that your landed cost is not knowable in advance. For a buyer with fixed-price obligations downstream, that is the risk you were trying to avoid.

What has to be nailed down in a floating contract

A floating price is only as good as its definition. Agree all of these in the contract text, not in correspondence:

• The reference. Which publication or exchange, which quotation within it, and for which origin and grade.
• The pricing period. Which days are averaged, and what happens if the reference is not published on a day in that window.
• The differential. Whether it is fixed for the contract or re-agreed per shipment.
• The pricing date. Bill of lading date, arrival, or a nominated window — this single clause moves money.
• Fallback. What governs if the reference is discontinued or materially changes methodology.

Most disputes on floating contracts are not about the market. They are about which day was supposed to price.

Hybrids

Partial fixing is common and often the sensible answer: fix a share of the volume and float the rest, or agree a floating price with a cap, a floor, or both. A collar costs something to put in place but converts an open-ended exposure into a known range.

Practical guidance

For a first contract with a new supplier, a fixed price on a modest volume is usually the better trade. It removes one variable while you are still learning how the counterparty performs, and performance is what you are really testing.

Once the relationship is established and volumes are regular, floating or partial fixing is worth revisiting — by then you know whether the seller delivers on specification and on time, which is the risk that actually matters.

How we quote

We quote FOB or CIF to a named port under Incoterms 2020, against a stated grade, volume, packing format and destination. Payment is by bank transfer in EUR or USD, and orders typically ship within 7 to 14 days of confirmation.

Because freight and packing move the landed figure substantially, we quote only against a named port and format rather than publishing a list price.

Send those details for a quotation. Contact us, or read how to write a purchase contract and payment terms explained.