What does Commodity Price Risk mean?
The risk of change in price of a commodity that is used as input for production, in the future is termed as commodity price risk. The change in price of the raw material would affect the producer of the commodity. Commodity inputs can be cotton, wheat, oil, sugar, aluminium, copper, etc.
Futures Knowledge Explains Commodity Price Risk
The future price of a commodity can be affected by various factors affecting regulatory or political changes, seasonal changes, technological advancements, etc. These factors are beyond control of a firm. To cover the commodity price risk, producers can trade in commodity futures and options where the commodity can be bought and sold at a predetermined price and date.