What is commodity risk?

Commodity risk is your business's exposure to changes in the price of raw materials and energy, such as fuel, metals, grains, or natural gas. If you buy commodities directly, or your suppliers and freight providers pass those costs on, price swings flow straight into your margins.

Who is exposed

• Manufacturers buying metals, plastics, or energy.
• Food and beverage companies sourcing grains, sugar, coffee, or dairy.
• Logistics, transport, and distribution businesses with large fuel and diesel bills.
• Importers whose landed costs depend on freight rates.

The currency connection

Most commodities are priced in US dollars. A business that pays in another currency faces two risks at once: the commodity price and the exchange rate. Managing them together gives a clearer picture of your true costs.

Common tools

• Commodity swaps: fix the price you pay for a set volume over a period.
• Futures: exchange-traded contracts to buy or sell at an agreed price on a future date.
• Options: protect against price spikes while keeping the benefit if prices fall.
• Fixed-price supply contracts: agree prices directly with suppliers for a set term.

Getting started

Identify which inputs drive your costs, how much you buy, and how quickly price changes reach your margins. Then decide how much price certainty you need for budgeting and pricing your own products.

How Leveredge helps

We help you understand your exposure and connect you with partners who can structure commodity and currency hedges. Book a call to learn more.

This article is general information, not financial advice. Hedging involves risk, and availability depends on the provider and your eligibility.