Commodity hedging

Commodity hedging is a strategy used by producers or buyers to reduce the risk of price fluctuations in raw materials or goods. For example, a farmer might lock in a selling price for their crops in advance, while an airline might secure future fuel prices. They do this by entering into financial contracts called futures or options, which offset potential losses if prices move unfavorably. Essentially, hedging helps stabilize revenue and costs, providing financial planning certainty despite volatile commodity markets.