What are Common Strategies to Mitigate Commodity Risk?
Businesses employ various strategies to manage commodity risk, including:
Hedging: Using financial instruments like futures, options, and swaps to lock in prices and reduce exposure to price fluctuations. Diversification: Sourcing from multiple suppliers or investing in different commodities to spread risk. Forward Contracts: Agreeing on a fixed price for future purchases to avoid price volatility. Inventory Management: Maintaining optimal inventory levels to buffer against price changes. Vertical Integration: Controlling more stages of the supply chain to reduce dependency on external suppliers.